SpartanNash Co (SPTN) 2015 Q4 法說會逐字稿

Good morning and welcome to the SpartanNash Company's Fourth Quarter and Fiscal Year 2015 Financial Results Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Katie Turner, please go ahead.

Thank you. Good morning and welcome to the SpartanNash Company's fourth quarter and fiscal year 2015 earnings conference call. By now, everyone should have access to the earnings release for the fourth quarter ended January 2, 2016. For a copy of the release, please visit SpartanNash's website at www.spartannash.com/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'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 expectations 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 the risk factors and the uncertainties associated with SpartanNash's forward-looking statements 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, investors should not place undue reliance on any forward-looking statement. SpartanNash disclaims any intention or obligation to update or revise any forward-looking statement.

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 the other information as 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.

Thanks, Katie. Good morning and thank you for joining our fourth quarter of fiscal 2015 earnings conference call. With me this morning are Dave Staples, our EVP and 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 fiscal year. Then Dave will share some additional detail about fourth quarter financial results as well as our outlook for fiscal 2016. Finally, I'll provide some closing remarks and then we'll open up the call and take some questions.

We're pleased to report positive finish to the year with fourth quarter earnings results exceeding expectations and guidance, driven largely by the net impact, global inflation and inventory levels, again on LIFO as well as lower expenses resulting from our cost reduction efforts. In the fourth quarter, we continued to execute on our strategy to invest in our retail business, expand our consumer-centric merchandising and marketing programs and lay the groundwork for new business opportunities in both our food distribution and military segments. We continue to benefit from merger integration as well as improve the operational efficiencies in both our distribution network and retail operations. Despite the challenging operating environment, we delivered against many of our key initiatives, strengthening our foundation and core competencies, and positioning us for continued earnings growth in 2016 and beyond.

More specifically in our Food Distribution segment, the fourth quarter sales performance trend was primarily impacted by increased deflation mainly in proteins and dairy as well as very unseasonable weather conditions in our northern territories. And despite some of the seasonal and economic challenges we faced in the quarter, we're feeling very positive about our current sales pipeline. During the quarter, as we previously reported, we entered into a partnership with the largest locally owned and operated grocer in Western Wisconsin, Gordy's Market to become its primary supplier. We began distributing private brand products including our natural and organic Full Circle brand to Gordy's in February and will be servicing Gordy's as its primary distributor by May of 2016. We are excited about this agreement because Gordy's is a growth oriented retailer and a strategic market for us, and their trust in us reinforces the value that independent customers see in our private brand offerings, value added services, and our ability to help them grow and optimize their businesses. In addition to the positive news on Gordy's, we've also begun a relationship with Amazon which we are very excited about, and we continue to look at several other opportunities to grow sales with other nontraditional customers.

We also continue to explore opportunities that will improve the overall customer experience and further optimize their distribution network. By increasing asset utilization and reducing empty miles, we expect to better manage costs and improve efficiency across our food distribution and military channels. We're also focused on reducing inventory shrink within our warehouses, a major efficiency initiative in 2016 that we expect to lead to enhanced product freshness and selection in our facilities as well as improve customer satisfaction and profitability.

Finally, I am pleased to report that the Company and its union representing our Lima, Ohio facility, ratified a new one-year labor agreement that was set to expire in January. This new agreement will continue to provide our associates with a competitive wage and benefits package, while enabling the Company to continue to increase operational efficiencies. In our retail segment, the net sales trend was primarily impacted by the same unseasonable weather and low levels of inflation in our distribution operations as well as the continued competitive and low fuel price environment.

We estimated that competitive openings had a negative impact of approximately 200 points on comp store sales and we expect majority of this impact will be cycled by the end of the second quarter of fiscal 2016. Due to the current environment, we're even more focused on driving profitable top-line growth. To that end, we continue to work on building marketing tools and capabilities that enable relevant personalized content across all of our marketing channels. With these improved capabilities, we look to achieve more effective target marketing, specific brand positioning and campaign execution. We'll also continue to invest in our store base during fiscal 2016, and plan to remodel and rebanner eight stores of Family Fare, primarily in the Omaha market. On completion of the remodeling and rebannering efforts, all of our stores in these markets, with the exception of these three [super marketal] stores will be branded Family Fare. We also have several additional remodels planned across our store base, which I believe when combined with the Omaha effort, should have a significant change on our sales front. Additionally, we continue to leverage our pharmacy and fuel programs as part of our loyalty platform. In the fourth quarter, we completed the expansion of $4 and $10 generic pharmacy offering to our Western store base. In Michigan, our pharmacies posted a 1.7% increase in the script count for the quarter, it was the 20th consecutive quarter of positive script count growth and 2.7% increase for the full year. Our Michigan fuel centers posted a 3.2% increase in comp gallons sold for the quarter, and we continue offering fuel promotions in our Western markets by participating with third-party fuel centers.

Finally, on the product side, we continue to expand our private brand program for both our distribution and retail customers. We experienced good growth in our natural, organic Full Circle brands in 2015 and planned to further emphasize the brand in fiscal 2016, as the consumer appetite for natural, organic products continues to increase. We're also gaining traction with our health and beauty category as our increased product offerings were well received. For the fourth quarter of fiscal 2015, private brand unit penetration in our retail operations was 22.8% which continues to place us above the national average.

We ended fiscal 2015 with over 7,100 private brand offerings as we continue to fine tune our assortment. Sales in our military segment were down 4.5% this quarter when excluding the 53rd week of fiscal 2014 primarily due to lower sales at the DeCA-operated commissaries. Although commissaries sales were down, we outperformed industry trends in DeCA's year-over-year sales decline due to our ability to attract additional new business from existing customers. As we've previously stated, one of our key strategic initiatives is to become a logistics company that solves customer's distribution needs. And to that end, we continue to see positive momentum in our sales pipeline and are currently piloting the distribution of new fresh products to commissaries. We are encouraged by the initial results of the test phase and the potential to secure what would be significant volume to the ongoing business. Additionally, we're actively pursuing alternative new business opportunities that would even further leverage our military supply chain capabilities.

With that, I'll turn the call over to Dave for a few details on our financial results and the outlook for 2016. Dave?

Thank you, Dennis and good morning, everyone. Before I get into the numbers, I want to remind everyone that the fiscal 2015 fourth quarter included 12-week and fiscal year 2015 was a 52-week year compared to 13 weeks for the fourth quarter of fiscal 2014 and 53 weeks for fiscal year 2014. With those details out of the way, let's get started. Consolidated net sales for the 12-week fourth quarter of fiscal 2015 were $1.77 billion versus $1.83 billion in the prior year quarter when excluding $135.2 million in sales for the extra week last year. Consolidated gross profit margin for the fourth quarter was 14.6% compared to 14.4% in the prior year and primarily reflects the impact low inflation had on LIFO expense, net of its impact on other inflation related gain. Adjusted fourth quarter operating expenses were $222.9 million or 12.6% of net sales compared to $232.5 million or 12.7% of net sales if last year's 53rd week was excluded.

The adjusted fourth quarter results exclude $1.2 million of merger integration and acquisition costs, $1 million of restructuring charges, $200,000 in other adjustment charges. Prior year fourth quarter excludes $15.5 million in expenses for the extra week, $4.5 million of merger integration costs, $6.2 million of asset impairment and restructuring charges, $1.6 million in pension settlement charges and $900,000 in other adjusted charges.

Adjusted EBITDA for the fourth quarter was $49.9 million compared to $51.7 million, when excluding $3.7 million from the extra week last year or 2.8% of net sales in both periods. Adjusted earnings from continuing operations for the fourth quarter increased to $19.6 million or $0.52 per diluted share from $16.5 million or $0.44 per diluted share when excluding $2 million or $0.05 per diluted share for the extra week last year.

These results exclude net after-tax charges for fiscal 2015 and 2014 of $0.06 and $0.17 per diluted share respectively, primarily related to the items discussed previously and a debt extinguishment charge in fiscal 2015 fourth quarter.

Turning to our operating segments, fourth quarter net sales for the food distribution segment was $773.7 million compare to $796.6 million in the prior year quarter, when excluding $56.5 million for the extra week last year. Fourth quarter operating earnings for the food distribution segment when adjusted for $700,000 merger integration and acquisition cost increased 20% to $23.4 million from $19.5 million last year excluding $1.1 million from the extra week and $4.6 million in merger integration expenses, asset impairment restructuring gains and other adjusted non-cash expenses. The increase was primarily due to merger synergies and lower operating costs due to productivity and efficiency initiatives and lower LIFO expense partially offset by lower inflation related gain.

In our Retail segment, fourth quarter net sales were $489.6 million compared to $502.3 million when excluding $41.8 million of sales from the extra week last year. The decrease is due to a 4.6% decline in comparable store sale excluding fuel, $10.7 million in lower sales due to the closure of retail stores and fuel centers, and $9.2 million due to significantly lower retail fuel prices compared to the prior year. Partially offset by sales of $22 million from the recently acquired Dan's Supermarket store. Comparable store sales trends reflect the low inflationary environment, increased competition as well as the impact on seasonably warm weather.

Retail segment operating earnings for the quarter, when adjusted to exclude $1.6 million of pre-tax merger integration and acquisition costs, restructuring charges increased to $8.4 million from $5.7 million last year. When adjusting last year to exclude $2 million from the extra week and $8.5 million of the other non-cash expenses. The increase was due primarily to lower occupancy costs, improved margins and the impact of store closures in prior period, partially offset by the impact of lower sales.

In our Military segment, fourth quarter net sales were $504.7 million compared to $528.5 million, when excluding $36.9 million for the extra week last year primarily due to lower sales at DeCA operated commissaries. Military operating earnings were $3.7 million, adjusted to exclude $100,000 of non-cash costs and expenses, compared to $5.3 million last year when excluding $600,000 for the extra week and $100,000 of non-cash cost and expenses last year. The decrease was primarily due to the lower sales volume and inflation related gains, partially offset by lower transportation costs.

From a cash flow perspective, fiscal 2015 operating cash flow was $219.5 million compared $139.1 million for the comparable period last year, primarily due to improvements in working capital which were largely the result of current year inventory management initiatives and the timing of payments in the prior year. Total net long-term debt decreased $91.5 million to $472.3 million as of January 2, 2016, versus $563.8 million at the end of last year. During the fourth quarter, we redeemed the outstanding $50 million principal amount of our Senior Note. As a result of the prepayment, we incurred a loss of $1.2 million for the redemption premium and write-off of unamortized debt issuance costs. However, we expect to reduce ongoing annual interest expense by approximately $2 million assuming no further interest rate increase. We ended the quarter with leverage of 2.06 times EBITDA, which is very close to our target of 2 times.

Now, to briefly review the fiscal 2015 annual results. Consolidated net sales were $7.65 billion compared to $7.78 billion last year, when excluding the 53rd week. Comparable store sales excluding fuel decreased 2.9% in fiscal 2015. Adjusted EPS from continuing operations improved to $1.98 per diluted share compared to $1.80 per diluted share last year when excluding the 53rd week. I will now provide further detail on our outlook for fiscal 2016. We are encouraged by our start of the year as we see exciting opportunities in our distribution military channel and some improvement in our retail segment sales trends. But we face continuing headwinds from low inflation, we anticipate the competitive pressure will ease by mid-year as we cycle several fiscal 2015 openings.

For fiscal 2016, we expect to see growth in year-over-year sales in the food distribution segment and comparable retail store sales to be in the range of slightly negative to flat, as our second half trends showed continued improvement due to our capital investments, merchandising initiatives and cycling of competitive opening. From a profitability perspective, we expect stronger year-over-year performance during the first three quarters of fiscal 2016, as certain favorable rebate programs and contributions from the recently acquired Dan's stores will not be cycled until the beginning of the third quarter. Additionally, we anticipate that the fourth quarter of 2016 will fall short of fiscal 2015, as we do not expect similar inflation related impact on LIFO to recur in 2016.

As a result, we expect adjusted earnings per share from continuing operations for fiscal 2016 to approximate $2.07 to $2.18 excluding merger integration cost and other adjusted expenses and gain. We expect capital expenditures for fiscal 2016 to be in the range of $72 million to $75 million with depreciation and amortization of approximately $76 million to $78 million and total interest expense of approximately $20 million to $22 million. This concludes our financial discussion and I'll now turn the call back to Dennis for his closing remarks. Dennis?

Thanks Dave. One conclusion, we are pleased with the foundation that we've laid by the sales pipeline we were able to develop in fiscal 2015, and are optimistic regarding our prospects for 2016. We continue to execute our strategy to drive sales, improve operational efficiencies and believe that our efforts are beginning to resonate with our customers and bring benefits to the company. We have some exciting potential in new business opportunities in both our food distribution and military channels that will come from our team's innovative and can-do attitude. We plan to further invest in our store base and develop our marketing systems and programs to improve personalization of the shopping experience and customer segmentation as we seek to improve the overall customer experience. While we expect continuing headwinds due to the challenging sales environment and low levels of inflation, we believe that the strong foundation we've already built supplemented by our ongoing initiatives and potential acquisitions, will deliver long-term sustainable growth and value for our shareholders. With that, we'll now open the call and take some questions.

Thank you, Mr. Eidson. We will now begin the question-and-answer session. (Operator Instructions) Scott Mushkin, Wolfe Research.

Hey guys, I kind of have a series of questions and nice job with the tough environment out there. So current trends Dave, I think you said that you think same store sales improved just a little bit, I didn't quite hear that, so I just want to get, what you said about current trend?.

Yes, I think as we look into the quarter, we're seeing some improvements in those trends and that's really with all of the significant weather improvement, I mean a little bit obviously. We went from zero snow and 15 degrees over normal to some snow and maybe 10 degrees over normal into the first quarter. So we feel good about that and we really haven't kicked in any of our capital improvements and the like at this point. So --

So your thought processes is, you can go flat on those retail sales -- same store sales?

Yes, I think. As we said, we'll be slightly negative to flat and I think what you're going to see is you have to make it through the first part of the year and then we begin to cycle of competitive environment. We are putting in some significant power into the Omaha market through our capital program and a few other key remodels. And we continue to get smarter and better with our customer segmentation and personalization, and we really expect to see more of that take hold as we move through the second half of the year.

Okay. So, kind of a -- tougher first half, better second half, is kind of your thought process.

Exactly.

So then, my second question on just retail in general, and it seems that if you look at the Company, the distribution side of the business seems to have some momentum in the sense of the competitive landscape has clearly improved. I think you mentioned the deal with Amazon and then also some experiments with the military and fresh, and obviously also a good client win lately. I mean is it time to deemphasize retail and emphasize the other part and -- kind of where are you (inaudible) broadly on retail versus the other part of the business? And then I had one more follow-up?.

I don't think that's our perspective at the moment and retail continues to be 20% of the revenue stream. And it's core to what we do. Not all markets are created equal. So, obviously, the western markets have been more of a challenge than what we've experienced in Michigan. And so, there is a bit of a bifurcation in that. Omaha is a tough marketplace with a lot of competitive impacts that will come over last couple of years. We're working hard to upgrade the facilities there, that was very undercapitalized marketplace for the Company. Probably got a little bit unlucky in North Dakota with regard to what's happened with oil prices.

The other thing is, we use our retail not only to delivering sales and profit, but we also use it to help us be better distributors or wholesalers. And I think maybe unlike some of the competitive set, we use that as a bit of a test tool. We aggressively invite our independent customers to come to our retail stores, we like to show them what we are doing, show them things that are working, show them things that don't work. We really believe having hands-on walking in your shoes kind of experience, really adds to our value as a distributor. I think it resonates with certain customers very strongly, I can tell you the Gordy's team has been very pleased with the kind of insight we've been able to deliver, they've been through multiple stores that we operate, also competitive stores that -- we tour them with our retail team as well our distribution team. So, there is certain synergy in that, that I think we very much like.

That's perfect. And then my final question has to do with, I think you guys are now under two times leverage, obviously an acquisitive company. Should we expect a deal this year? I mean I hate to be that blunt, but I mean, it's been a while now and should we expect -- is it your anticipation that you might get something done this year?

Scott, that's an almost impossible question to answer, right? So, we've discussed that, we are going to be acquisitive. We think that we are positioned to potentially roll up, what is a pretty fragmented distribution business right now in today's environment. I would say to you, may be the environment is even better today than it has been in the last couple of years. Generally speaking, the low growth kind of environment we are in. I mean if you look at grocery sales across the country tonnage is flat, maybe slightly negative. People are looking for ways to improve bottom-line performance. I think M&A is potentially one of those areas where you can do that. So, call us in for being interested, but I don't think we can give you much of a target in terms of time.

That's perfect. That's a great answer. Thanks so much for taking my questions.

Scott, I think just let me add one just quick comment on that I mean. We talk a lot about the deals and they are important to our strategy. We are not going to just do deals to do deals, right. They still need to fit and we'll be -- well, we've said we are more proactive, but we still are going to be selective.

I would expect that, Dave. Thanks.

Chuck Cerankosky, Northcoast Research.

Good morning, everyone. I was wondering if you could get into the comps a little bit from the quarter and maybe split it between how you did in Michigan and how you did in your western stores, and then we could go from there.

Yes, I think -- we don't want to get too granular on all of that detail Chuck, obviously it's not like we're operating thousands of stores, right? In 160 plus locations. I would tell you that the biggest driver of the negative was the west stores. And Michigan was negative in the quarter, we had probably the biggest challenge in the Northern geography where we just had no snow and warm weather. You and I've actually traveled some of those Northern stores, as you become more familiar with our company and you know there are resort areas in, it's important in the summer, it's also important in the winter, there are ski slopes up there and resorts and there is lots of snowmobiling. We did not have one resort in Northern Michigan open in December because there simply was no snow and the temperatures were too warm for them to make snow. So, that's kind of the bifurcation, then we have -- we are, as Dave indicated earlier performing better as we start early in Q1 on our comps, yet as we've described, we probably have the first half of the year where we got some pretty significant competitive impact that we will need to get through and then you see a brighter second half of the year.

Refresh my memory please, are the fresh [fares] that were converted buildings in the western market, are they in the comps?

All of the western retail is in the comp, other I think we had (inaudible) in the store we built just now. I think everything is in comp now, right now, Chuck.

Okay. Now, how would you describe the stores that are say in -- have been converted, and will be converted sort of your key per stores, how are they looking versus the rest of the western stores in terms of same-store sales growth?

I think it's a pretty granular slice you're asking me to describe to you right.

Yes and a few -- first you can answer that.

Yes. I would say here that the stores that we refreshed in Omaha last year, which was a big initiative. We're continuing to run double-digit comp from the run rate, before the transition to the Family Fare brand. So they're performing, we are looking for even more there and we have confidence in the market place, we're going to do 8 more remodels, we're going to convert that market place to Family Fare entirely with the exception of three Super (inaudible) stores which are very ethnic Hispanic format and are doing very well. So, we've got more work to do there and we are rolling up our sleeves to get that work done.

Is that to suggest then when you look at the western stores where the [caps] is a reported number are worse than the 4.6% decrease. We saw in the press release, that it's more of a capital dollars injection versus simply lowering price and increasing promotion.

Well, I think big part of it is capital. Take the west stores largely were undercapitalized. So I think there's a big part of it that is capital. As we just talked about the competitive impact is pretty significant there as well. So we don't want to leave those out of the equation. And then North Dakota marketplace was absolutely booming, right and now it's not. It isn't going to boom for a while. So, we are living that and probably should (inaudible) think about the retail, sales everything in comp. So Dan's stores that we bought at Bismarck, I think we closed that transaction last June, would not be in comp yet.

Alright. Thank you very much.

Karen Short, Deutsche Bank.

Hi, good morning. It's actually Ryan Gilligan on for Karen. Can you walk us through what gets you to the high end and low end of your comp guidance range? And what does guidance assume for competitive openings and for inflation?

Well, I mean from the high and the low, it's relatively narrow range. I am not sure there is a lot of different drivers, but I think what really is changing the trajectory of the comps, are the things we talked about. We're going to continue a significant investment in capital in the western market, but also in some key other markets. We think that has made a difference in the past and will continue to make a difference. And we've talked about the competitive environment, we are certainly going to cycle some significant openings as we move through the year, as we get through that second quarter and into the third quarter, we clear most of the prior year activity. There is obviously going to be new competitive openings every year, right. (inaudible) retail not on the same magnitude though that we experienced in this past year across all our markets.

And then as we said earlier, I think we really continue to focus more and more on our customer analytics and our [ability] in the segment, our ability to reach out to them, especially as we spread the loyalty program to the west with our remodels and rebannerings, the Family Fare. All those things we just see as giving us a lot of momentum as we cycle through that competition in the back half of the year. And then, of course, we are going to cycle, no snow in the fourth quarter and I assume that will help us as well. So, I think those are really the factors and then the range from the low end to the high end of that guidance, I guess we're getting one of those factors a little bit. We have some movement there, but I think it's a fairly tight range we deliver.

Got it. That's helpful, thanks. And then what are you expecting for inflation, I guess, by segment?

Inflation will be everything next year, the first half is probably not -- I mean the first half is probably what you know, it could be slightly deflationary given the trends in proteins that we're seeing. We really expect that the protein part of that to cycle out by the mid-year, and then I guess our thoughts today would be, probably go inflationary in the back half, because we're seeing some levels of inflation in the center store as we speak now and produce. So, it's probably going to be pretty modest by the end of the year. I mean, I've seen people projecting flat, now the government agencies are still in that 2.5 to 3 which seems pretty high, but I wouldn't be shocked to be in that 1% range, maybe, give or take, I don't know, I mean that my best guess. Dennis, do you have any --

Yes, I think, that's right. I think if you look at the government statistics this year food at home was 1.2% inflationary, kind of [black] right. And as you pointed out protein was really crazy throughout the year, even though the government's statistics are talking about 2% to 3% for the full-year, I see something a little bit more like what we just experienced and with some lumpiness on the proteins. I think maybe that's a little bit of a bad news because the historical average is around 2.5%; 2014 was 2.4%, right. I think maybe the other side of that is we (inaudible) little bit used to operating in that environment and so we're not cycling in a negative way. So, the [dinner is] a little bit of the lemonades with the lemon.

That makes sense, so it sounds like excluding protein you guys are slightly inflationary right now?

No, I'm excluding proteins we are probably slightly inflationary. In theory actually early in Q1 we've now seen dairy flip from deflationary to inflationary. And so there is a bit of a change. Yes, that's probably excluding -- I haven't done the math on that Ryan, but that maybe right, excluding proteins it's slightly inflationary.

Okay, that makes sense. And I guess just quickly switching gears to fuel margins and pharmacy department, can you talk about how they impacted margins this quarter? And how should we think about, I guess, the pharmacy impact on the comp and margins in 2016?

I'll tackle the fuel one. We actually were -- we had a good fuel margin quarter. We actually were about $0.043 a gallon better margin than we were a year ago in the same quarter. We don't -- fuel, it's not a huge part of our business. So, it's contributed to profitability incrementally less than $0.01 in the quarter, but we were pleased with the fuel margin. And hopefully we can see it stay in that, more elevated range. And the other question was?

Just on the pharmacy impacted margins and are you expecting the pharmacy to impact results in 2016?

We're a little contrary in there. We had the benefit of being able to negotiate and get into a new contract for our pharmacy business. And so, we actually got a little bit of help on that frontier in the fourth quarter. And we'll probably continue to get help on that through the first two quarters of the year and then we'll kind of cycle the implementation of the program. So, we'll hold our own in that area. It really won't be an overall negative for us, it will be a little bit of help.

That's helpful. Thanks.

Mark Wiltamuth, Jefferies.

Hi, good morning. On the distribution side, how does deflation play out there? Does that end up helping you or hurting you? And in the quarter, I guess deflation kind of accelerated in the meat, did that end up helping or hurting you for the quarter? And it does seem like you're still seeing continued synergy gains rolling through this segment. And wanted to know if some of that continues into 2016? Thanks.

Sure. I will take the first couple of parts of that, I guess I'll give Dave the synergy question. So generally speaking, I would say to you, Mark that deflation in the distribution segment is not helpful. So, we end up, as I think, most wholesalers benefiting a bit from inventory appreciation as we are holding inventory and costs are going up, we [value] inventory and that helps our P&L. When it goes the opposite way, you lose that benefit in your run rate, right. So, it's not helpful and in this quarter, meat went to 8.7% deflationary. And in Q3, it was only 5.5% deflationary. So, it was a worsening from Q3 to Q4. Early into this first quarter, meat is actually 9.1% deflationary. So I think that did answer the question earlier, we feel that protein is going to nag at us for a bit. It's really all of them, it's beef, pork and poultry are all pretty significantly negative from an inflation-deflation perspective.

So, I guess if you are talking about the synergy component, we do continue to benefit. We've said it was a three-year integration plan and it is a three-year integration plan. Our distribution team led by Derek is doing a wonderful job. I mean as we look at the landscape of our warehouses and our vision really is, the more volume the more products in warehouse and fresh is the product, the better the variety, more we can offer to our customers. And they in turn can offer to their customers. So, we are executing that trend, and that continues to provide efficiency and synergy for us in addition to discontinuing to execute the integration plan. So, we are happy on all those fronts and we certainly see that being beneficial through [the current].

How meaningful is the Gordy's pickup? Is that sizeable, is it enough to definitely take you to the positives in the next year?

Yes, I mean if you look at -- as we've mentioned, we expect our food distribution volumes to go positive this year. That's a big account. That's a big win for us in a lot of dimensions. I mean this merger really has been about creating this platform where we could differentiate this company to the market as to why we are a different type of distributor. Dennis alluded to earlier, we use that retail knowledge to make ourselves better in this arena. We use that knowledge to show how we approach distribution from a retailer's perspective and really come at it I think from a different angle. And I think that really played well with a very significant player in Wisconsin. And it's a core market for us. And so, that's a big win on several dimensions.

I just like to add to that, I think Dave described it perfectly. I remarked earlier that we are pleased with the pipeline of opportunities that we have and I think the last two years, trust me, this team has worked their tail off to kind of get a foundation built, and it feels like we've gotten a nice solid foundation beneath us and our pipeline of potential new customers has never been stronger, so It's more than just goods and it is also the kind of we made around (inaudible) and the test business that we were doing there. We don't have a deal signed, sealed and delivered on that, but we feel great about it obviously or we would not put into the talking points this morning. That's significant volume and that's leveraging our distribution assets in a different way than we've done in the past. In the Amazon, opportunity is also another one of those areas where the team hasn't just been sitting by, thinking hey Gordy's is just core grocery distributor or is it just going to stay inside of this box. We think there are plenty of opportunities outside of the core, that we can avail ourselves to and more feeling about them as well. We obviously can't give a lot of detail about this stuff for plenty of reasons, but we are feeling more optimistic about the go forward to be sure.

Okay, just quickly on the nature of that Fresh with the military. Is that kind of in test mode or how does that kind of play out to become more permanent?

Yes, we've been characterized and I think we use a word test here. So, the answer is clearly yes. We think that there will be some clarity to that probably inside of this quarter. We're fairly optimistic that that's going to end in a good place. I might just add here as it relates to this, bit of a different kind of business. It could be that this would end up being consignment business which the profitability would remain the same, but the sales wouldn't show up in our P&L, so that's a kind of an undetermined variable at the moment, but wouldn't want anybody to be surprised if that's the way it manifested itself into our business platform.

Okay, thank you.

You are welcome.

Ajay Jain, Pivotal Research Group.

Yes, hi, good morning. I wanted to ask, what's reflected in your EBITDA outlook for this year, are you assuming any EBITDA growth to support the EPS guidance?

Yes certainly, we are. Our focus here is how do we continue to make this better and stronger and deleverage, and reinvest and growing the business. So, we expect EBITDA to increase as well.

Okay. And on retail comps, I just want to confirm if you're expecting to cycle out of the majority of the competitive store openings by the end of Q2 and let's just assume that there's no deflation in the sales mix by that point, should we infer that you're expecting retail comps to be positive in the back half of the year?

Yes, I mean, I guess if you look at our trend, you would have to expect that as we move through the third quarter, we begin to (inaudible) in that direction. Overall for the year that we will blend to -- like we said slightly negative to flat and so we certainly expect to get some benefits out of our efforts and the cycling and improved condition.

All right. And I'd also wanted to ask about the situation in Flint, has that had any kind of measurable impact on your operations either positive or negative?

No, it has not had, direct financial impact on our business. I would tell you that from a social and cultural perspective, it has had an impact on the company and our associates. We were very active early on with contributing clear water, drinking water to the community of Flint, as a company initiative. Our customers have also been engaged with us to deliver water there, I think and somebody is going to correct me if I am wrong here, I think we are very near if we haven't reached already sending 2 million bottles of water to Flint, from SpartanNash and their customers to support the effort there.

Alright. And I just wanted to go back to the retailing operations for a second, can you just talk about customer traffic this last quarter, how much it increased year-over-year, and did you see any worsening in traffic sequentially from Q3 to Q4?

Yes, transaction and call traffic actually was equal to the [FPT miss]. So we did have challenge with traffic, frankly it was a little bit better in Q3. What we have seen early in Q1 is very meaningful change in that statistic. And so traffic now is on the flattish side in Q1 and that also has a bifurcation between Michigan and the balance of corporate retail, or Michigan (inaudible) we would be positive in traffic (inaudible) one. So again, it's awfully hard to detail them on these numbers because we have a pretty small footprint.

Okay. But very meaningful change positive in the current quarter.

I would say meaningful change from the trend in Q4 to the first four weeks of the quarter.

All right. Just one final question, can you just talk about the new relationship with Amazon Prime? How much of a revenue opportunity is there, if you can comment?

Yes, I think we can put a little bit color on that. So the relationship we have is with the segment that's called Amazon Prime Now. And that's an area where I think they are operating in some 29 geographies in the United States today. And they have fulfillments in those geographies. We think that's probably going to double as we go throughout the year and the number of fulfillment centers that they will have. And then we are providing product directly to their distribution centers. It's not direct to consumer. And we think we would find ourselves in a position to be engaged with more than half of those as we fully build this out. And in terms of the volume -- maybe it would be fair to say, we are talking tens of millions without getting too far ahead of myself on a fully baked in annualized basis.

Okay. Thank you very much.

Chuck Cerankosky, Northcoast Research.

Dave, I see the assets held for sale are at zero now as you moved things off the balance sheet over the course of last year. Any other assets that might be sold if we took a full year look and is it dependent on some strategic decisions at the Company or buyers coming forward? And I'm just wondered if the balance sheet gets even stronger as a result of that.

Well, I think the balance sheet will get even stronger barring any other kind of activities that requires financing just from our cash flow. We have a lot of assets spread out across the footprints of our operations. There could always be some items for sale. I wouldn't rule it out. I mean I would rule it out. I don't think it will be overly material if any of those happen, but we always get some headwind from that given our restructuring activities, we tend to free up some assets when we do that and I would expect we would get some proceeds out of that line.

The balance sheet -- we've been sort of kept talking about that, but I wanted to thank Dave and his team, really the whole operations team taking that debt down and as you think about, what we've talked about strategically wanting to accomplish going forward, deleveraging that balance sheet. It was just as important as building the foundation as a business. So I think it's great when a plan comes together and I feel good about where we've landed here.

Thanks and good luck in 2016.

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Dennis Eidson for any closing remarks.

Thanks. I just want to thank everybody for participating today and well that concludes our remarks for Q4 and we look forward to speaking with everybody again at the end of next quarter. Thanks.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.