SPTN - SpartanNash Co

[DTEJD1997]

Hey all:

 

Anybody else looking at SPTN?

 

They are a grocery wholersaler/retailer located primarily in the Mid-West.  They have a lot of operations in Michigan, and are also headquartered there.

 

I used to own this YEARS ago.  I haven't really paid too much attention to them since I sold out, but I am slowly starting to look at it again.

 

This is a difficult industry, but I think some of the fears about it are overblown, especially when it comes to WholeFoods and AMZN.

 

SPTN is trading below book value, trading at a likely forward P/E of 10 (possibly less), pays a healthy dividend (recently raised), has reduced share count and debt, and has made some acquisitions.

 

It looks like this upcoming quarter will be a difficult one for them...but then it should be getting better.

 

I don't think this will be a homerun, but maybe could return 15% a year for a few years?

 

Any thoughts?

[Spekulatius]

I Never heard of  SPTN before. This is a tough business, but there appears to be some hard asset backing up this stock - 7M Sqft of owned distribution (warehouse ) space and ~1M SQFT of owned store space. Then on the negative side, their debt had been rising, probably as a result their capital returns (dividends and buybacks) which were above their FCF.

 

I guess it’s reasonably cheap, but there is downside risk due to the low margins, if they misstep.

[DTEJD1997]

hey all:

 

SPTN is materially lower than it was when this thread started.  On 5/31/19 stock price is about $11.60/share.  Shares are down about $4 in space of a month.  Forward P/E is about 11 or 12?  Dividend yield now about 6.5%

 

They posted mildly lower than expected earnings this latest quarter, they've also lowered forward guidance a bit.

 

They seem to be having difficulty executing their new business strategy(s).  They are clearly not executing, but it is also not a total disaster, they are still making money and cash flowing.

 

IF they can turn things around, there is no reason why they couldn't do $2/share in earnings.  Heck, at 1.2% net margin, (their historical high), they could be earning $2.65/share.

 

Any thoughts?

[My Own Personal Hedge Fun]

Seems like they're trying to hang in there in a tough environment. Wish they were in my area so I could speak from personal experience as a shopper, but I looked back at the last earnings call ( https://seekingalpha.com/article/4265363-spartannash-co-sptn-ceo-dave-staples-q1-2019-results-earnings-call-transcript?part=single ) and I do like their strategy to build around "affordable wellness" which is exactly what Kroger's done with SimpleTruth, and even Whole Foods with the 365 brand (even more affordable under Amazon). I think this is one where it would really help to hear some grocery shoppers report that they're moving some spending to Spartan from Meijer/Wal-Mart/Kroger.

[DTEJD1997]

Seems like they're trying to hang in there in a tough environment. Wish they were in my area so I could speak from personal experience as a shopper, but I looked back at the last earnings call ( https://seekingalpha.com/article/4265363-spartannash-co-sptn-ceo-dave-staples-q1-2019-results-earnings-call-transcript?part=single ) and I do like their strategy to build around "affordable wellness" which is exactly what Kroger's done with SimpleTruth, and even Whole Foods with the 365 brand (even more affordable under Amazon). I think this is one where it would really help to hear some grocery shoppers report that they're moving some spending to Spartan from Meijer/Wal-Mart/Kroger.

 

Way, way back when, I used to shop at SPTN stores quite a bit.  I still do from time to time, but not like I used to.

 

SPTN is headquartered in Grand Rapids MI, and I used to live there.  Of course, Meijers is also located there.  The couple of SPTN stores I shopped at were "regular" grocery stores.  Perhaps they were somewhat above average, but they were not "super centers", they primarily just carried food & related items.

 

Here in Detroit, SPTN supplies independent grocers. For many years, the city of Detroit literally had NO national or chain grocers.  The ONLY grocery stores were independent ones, owned by local families.  Mostly they had one location and it would be something like "FreshValue Foods" with a single location, maybe there might be a few locations if the family that owned was particularly hard working & successful.  SPTN was the wholesaler that USUALLY supplied these stores.

 

These stores were of varied sizes, from maybe 4k sq. ft. all the way up to 40k sq. ft., most of them probably being about 20k sq. ft.  Quality of the stores was all over the board, but to be perfectly frank, the vast majority of them were below average, with a surprising number being simply terrible.

 

Fast forward to today and there are now SEVERAL national grocery stores in Detroit.  There is a Whole Foods down in the arts/Wayne State district.  I also am reasonably sure there are now two Meijers "superstores".  There are also some "Sav-A-Lots".  Quality has generally come up a bit across the board...but the vast majority are still these independents supplied mainly by SPTN.  SPTN also supplies independents outside of Detroit of course.  These stores are all throughout the Midwest.  I've been in some that are dumps, and some that are coming close to a WholeFoods in terms of being high end. 

 

Some of these independent stores are quite well entrenched in communities.  Sometimes through lack of available real estate, carrying/catering to different ethnic groups (i.e. Middle Eastern & Muslims in Dearborn & Hamtramck), Polish & Eastern European in Madison Heights, and so on.  Others are well entrenched and catering to "regular" American folks, but offer extensive deli's & prepared foods & exceptional service.

 

So SPTN may have somewhat of a larger "niche" than would it would initially appear to be.  I can think of many of these small independents that have little/nothing to fear from Wholefoods or Kroger or Trader Joes.

 

IF THERE IS INTEREST FROM THE BOARD, I might photograph some of the independent stores supplied by SPTN and post them to the board so that others can get a feel for how big they are, how nice they appear (or don't).

 

I think a chunk of the earnings shortfall was due to the Romaine lettuce problem & some internal growth/quality initiatives.  If SPTN can get these under control or working just a bit better, a lot could fall to the bottom line.

 

One problem could be that they are undisciplined/unsuited/overpaying to buy out some of their retail accounts.  This has been VERY tricky for other wholesalers to accomplish successfully. 

 

It will definitely be interesting and SPTN is going to be near the top of my list to watch/research.

[My Own Personal Hedge Fun]

Good info. I do know some local stores that are successful at building a niche and fending off competition. There could be something said for the possibility that more money could be made there while the national chains fight each for a few years. I would imagine they will figure things out on the quality side. At the right price, most businesses are worth a look.

 

I'd be curious to see a couple pictures (or just knowing which stores they are to look them up on Google Maps or Yelp).

[DTEJD1997]

Hey all:

 

Just got done with a contracted project...got to catch up on finances & other things.

 

SPTN has continued to go down, hitting a 10 year low on Friday.

 

I listened to their investor presentation.  They talk a good talk.  Lots of discussion of improving operations, improving margins, paying down debt, opportunistic acquisitions and such.  So the good news is that it appears that management at least has SOME grasp of their financial situation.  Management is also cognizant about the competition and how SPTN can lower prices, offer more services/selection, and "get over" on the competition, but that competition will react/fight back.

 

The bad news is that talk is cheap and they have had mixed results on their recent operations and initiatives.

 

There might be some interesting and unusual operations going on at their company owned stores in/around Grand Rapids MI.  For example, some of them have in store butchers that make store produced sausages and such.  Also they are getting into store made, made to order "custom" donuts.  They are also getting into cutting mixing vegetables/fruits in store.  For example, you buy some onions, carrots and such and can get them washed, cut, mixed while you complete your other shopping.

 

I think these initiatives are interesting and have potential...but I think they may be somewhat limited.  If I remember correctly, their stores in/around Grand Rapids are somewhat higher caliber than a "regular" grocery store.  Here in Detroit, MOST of the independent stores supplied by SPTN are limited in service/selection and TEND to be "no frills" type stores.  Not all stores are like this, as they have some supplied independent stores in the suburbs that are more service oriented.

 

At a stock price of $11 and below, it might be cheaper to buyback/retire stock (getting rid of dividend on retired shares) than paying down debt?  The stock is also getting close to trading at 1/2 of book value.  If there is any time to be buying back, NOW is the time.  Unfortunately, most of their buyback was done at much higher prices, as is typical of most company buybacks.  Buy at medium to high prices, and if/when the stock price gets low, they are too worried about operations and capitalization than to do buybacks.  I've reached out to the company to get some feedback on buybacks, but have not heard anything yet.

 

So IF the company can get some of their operational improvements to go through (raising earnings/cashflow), AND they maintain the dividend, AND they pay down debt somewhat, AND they buy back a few percent of the shares...this thing could really be undervalued.  Question is, how many of these things can they get done?

 

Finally, who wants to invest in turkeys like this when you've got Beyond Meat, TSLA, and money losing delivery services?  If the market ever turns, this thing could go down WAY more!

[Deepdive]

Seems like they're trying to hang in there in a tough environment. Wish they were in my area so I could speak from personal experience as a shopper, but I looked back at the last earnings call ( https://seekingalpha.com/article/4265363-spartannash-co-sptn-ceo-dave-staples-q1-2019-results-earnings-call-transcript?part=single ) and I do like their strategy to build around "affordable wellness" which is exactly what Kroger's done with SimpleTruth, and even Whole Foods with the 365 brand (even more affordable under Amazon). I think this is one where it would really help to hear some grocery shoppers report that they're moving some spending to Spartan from Meijer/Wal-Mart/Kroger.

 

Way, way back when, I used to shop at SPTN stores quite a bit.  I still do from time to time, but not like I used to.

 

SPTN is headquartered in Grand Rapids MI, and I used to live there.  Of course, Meijers is also located there.  The couple of SPTN stores I shopped at were "regular" grocery stores.  Perhaps they were somewhat above average, but they were not "super centers", they primarily just carried food & related items.

 

Here in Detroit, SPTN supplies independent grocers. For many years, the city of Detroit literally had NO national or chain grocers.  The ONLY grocery stores were independent ones, owned by local families.  Mostly they had one location and it would be something like "FreshValue Foods" with a single location, maybe there might be a few locations if the family that owned was particularly hard working & successful.  SPTN was the wholesaler that USUALLY supplied these stores.

 

These stores were of varied sizes, from maybe 4k sq. ft. all the way up to 40k sq. ft., most of them probably being about 20k sq. ft.  Quality of the stores was all over the board, but to be perfectly frank, the vast majority of them were below average, with a surprising number being simply terrible.

 

Fast forward to today and there are now SEVERAL national grocery stores in Detroit.  There is a Whole Foods down in the arts/Wayne State district.  I also am reasonably sure there are now two Meijers "superstores".  There are also some "Sav-A-Lots".  Quality has generally come up a bit across the board...but the vast majority are still these independents supplied mainly by SPTN.  SPTN also supplies independents outside of Detroit of course.  These stores are all throughout the Midwest.  I've been in some that are dumps, and some that are coming close to a WholeFoods in terms of being high end. 

 

Some of these independent stores are quite well entrenched in communities.  Sometimes through lack of available real estate, carrying/catering to different ethnic groups (i.e. Middle Eastern & Muslims in Dearborn & Hamtramck), Polish & Eastern European in Madison Heights, and so on.  Others are well entrenched and catering to "regular" American folks, but offer extensive deli's & prepared foods & exceptional service.

 

So SPTN may have somewhat of a larger "niche" than would it would initially appear to be.  I can think of many of these small independents that have little/nothing to fear from Wholefoods or Kroger or Trader Joes.

 

IF THERE IS INTEREST FROM THE BOARD, I might photograph some of the independent stores supplied by SPTN and post them to the board so that others can get a feel for how big they are, how nice they appear (or don't).

 

I think a chunk of the earnings shortfall was due to the Romaine lettuce problem & some internal growth/quality initiatives.  If SPTN can get these under control or working just a bit better, a lot could fall to the bottom line.

 

One problem could be that they are undisciplined/unsuited/overpaying to buy out some of their retail accounts.  This has been VERY tricky for other wholesalers to accomplish successfully. 

 

It will definitely be interesting and SPTN is going to be near the top of my list to watch/research.

 

This is actually incredibly good detail

[DTEJD1997]

Seems like they're trying to hang in there in a tough environment. Wish they were in my area so I could speak from personal experience as a shopper, but I looked back at the last earnings call ( https://seekingalpha.com/article/4265363-spartannash-co-sptn-ceo-dave-staples-q1-2019-results-earnings-call-transcript?part=single ) and I do like their strategy to build around "affordable wellness" which is exactly what Kroger's done with SimpleTruth, and even Whole Foods with the 365 brand (even more affordable under Amazon). I think this is one where it would really help to hear some grocery shoppers report that they're moving some spending to Spartan from Meijer/Wal-Mart/Kroger.

 

Way, way back when, I used to shop at SPTN stores quite a bit.  I still do from time to time, but not like I used to.

 

SPTN is headquartered in Grand Rapids MI, and I used to live there.  Of course, Meijers is also located there.  The couple of SPTN stores I shopped at were "regular" grocery stores.  Perhaps they were somewhat above average, but they were not "super centers", they primarily just carried food & related items.

 

Here in Detroit, SPTN supplies independent grocers. For many years, the city of Detroit literally had NO national or chain grocers.  The ONLY grocery stores were independent ones, owned by local families.  Mostly they had one location and it would be something like "FreshValue Foods" with a single location, maybe there might be a few locations if the family that owned was particularly hard working & successful.  SPTN was the wholesaler that USUALLY supplied these stores.

 

These stores were of varied sizes, from maybe 4k sq. ft. all the way up to 40k sq. ft., most of them probably being about 20k sq. ft.  Quality of the stores was all over the board, but to be perfectly frank, the vast majority of them were below average, with a surprising number being simply terrible.

 

Fast forward to today and there are now SEVERAL national grocery stores in Detroit.  There is a Whole Foods down in the arts/Wayne State district.  I also am reasonably sure there are now two Meijers "superstores".  There are also some "Sav-A-Lots".  Quality has generally come up a bit across the board...but the vast majority are still these independents supplied mainly by SPTN.  SPTN also supplies independents outside of Detroit of course.  These stores are all throughout the Midwest.  I've been in some that are dumps, and some that are coming close to a WholeFoods in terms of being high end. 

 

Some of these independent stores are quite well entrenched in communities.  Sometimes through lack of available real estate, carrying/catering to different ethnic groups (i.e. Middle Eastern & Muslims in Dearborn & Hamtramck), Polish & Eastern European in Madison Heights, and so on.  Others are well entrenched and catering to "regular" American folks, but offer extensive deli's & prepared foods & exceptional service.

 

So SPTN may have somewhat of a larger "niche" than would it would initially appear to be.  I can think of many of these small independents that have little/nothing to fear from Wholefoods or Kroger or Trader Joes.

 

IF THERE IS INTEREST FROM THE BOARD, I might photograph some of the independent stores supplied by SPTN and post them to the board so that others can get a feel for how big they are, how nice they appear (or don't).

 

I think a chunk of the earnings shortfall was due to the Romaine lettuce problem & some internal growth/quality initiatives.  If SPTN can get these under control or working just a bit better, a lot could fall to the bottom line.

 

One problem could be that they are undisciplined/unsuited/overpaying to buy out some of their retail accounts.  This has been VERY tricky for other wholesalers to accomplish successfully. 

 

It will definitely be interesting and SPTN is going to be near the top of my list to watch/research.

 

This is actually incredibly good detail

 

So let it be written....so let it be done!

 

On Monday I shall be in/near Detroit and can stop & take a photo or two of some SPTN supplied grocery stores, low end, medium & high end.

 

I will endeavor to get them posted late in PM.

[Spekulatius]

A lot of grocer stocks are cheap, including the National ones. What makes SPTNa better buy than UNFI, VGMEA,WMK or IMKTA? SPTN may be cheaper then some, but generally speaking, all ththe grocery stocks , including even boutique stores like Sprouts are generally trading a

near the low end of their valuation range. So why is SPTN a better bet than all the above mentioned stocks?

[DTEJD1997]

A lot of grocer stocks are cheap, including the National ones. What makes SPTNa better buy than UNFI, VGMEA,WMK or IMKTA? SPTN may be cheaper then some, but generally speaking, all ththe grocery stocks , including even boutique stores like Sprouts are generally trading a

near the low end of their valuation range. So why is SPTN a better bet than all the above mentioned stocks?

 

While most of the grocers are trading near their low end of their valuation range, SPTN is arguably "cheaper" than those you mention.

 

For example, SPTN is trading near 1/2 of book value, pays close to a 7% dividend, .05 P/S ratio, and has experienced lower margins currently than they have historically.  SPTN has had some charges & problems such as the romaine lettuce recall.  Some of those are beyond the company's control, some are not.  Management is well aware of the problems and are taking steps to rectify the situation. If SPTN's net margin can get back to being close to 1%, the stock could easily be earning over $2/share.  If SPTN is making $2/share, I don't think it will trade for $11. 

 

SPTN has also been buying back shares, and they still have some $$$ left to spend under the authorization.  Buying back shares at this price level would be very accretive to earnings.  It could also benefit the balance sheet, as they no longer would be paying the 6.75% dividend on the retired shares.

 

Finally, SPTN is trading at a 10 year low.

 

I have no position.  I am investigating it further though.

[Spekulatius]

P/S isn’t the right metric, EV/S is. SPTN EV is ~$1.4B, which leads to ~0.2x EV/S and their EBITDA is $300M, which leads to about 7x EBITDA. On both of these metrics, VLGEA is cheaper (VLGEA has net cash and a stake in a distribution business). They are struggling  too with profitability (net profits are 1.5% of revenues)  but they are unlikely to get into financial distress anytime soon.

 

SPTN is basically and equity stub. They need to improve their financial performance or they are going to be in trouble. I would argue that there are better bets in the grocery sector out there, unless there are specific reasons, why SPTN performance will improve.

[Pref User]

I was reading through this forum yesterday and then last night I came across this. Thought it was very helpful for myself on getting beginners knowledge on the distribution business

 

https://cdn.ey.com/echannel/parthenon/pdf/perspectives/EY-Parthenon-Perspectives_Investing-in-Distribution_vFinal.pdf

[My Own Personal Hedge Fun]

Now that KR is lower, at this time if I were to make a comeback bet in grocery retail, it would be KR at $20 or less. What I liked (and learned) from WFM and Fresh Market is that strong brands with a core identity can handle competitive pressure (and get bought out in the process). To compete on price, you need a massive national presence, so Kroger and Wal-Mart are probably the two companies who stand a chance against Amazon. Heck, Kroger is even using their small regional chains to take on Visa — they're a little bit evil about keeping costs down, which is great for shareholders and customers (not so great for farmers and employees).

 

I worked at one of these local IGA stores in high school, and I remember running the numbers to figure out if the store was making money based on rough estimates of customer numbers, sales per customer, etc. No surprise, they weren't doing well and the store shut down a few years after I left for college. Over time I've watched Piggly Wiggly, Winn-Dixie and others bite the dust because they offer nothing to draw customers aways from Kroger, etc. I should've bought Kroger after watching them turn a dirty Winn-Dixie store where you always had to wait to check out (in the only lane they could afford to keep open) into a high volume paradise of efficiency where it felt like you never had to wait even at the busiest times (that always impressed me). They probably tripled the sales of Winn-Dixie in the exact same building within a year (just considering how Kroger could get at least 3-4x the customers through checkout during busy periods).

 

I've seen some local stores hold their own against competition. Interestingly, the major chains that I have confidence in aren't publicly traded. Publix is a great company, and if I ever live in their territory I'd honestly consider getting a job there to access their ESOP ;) 

 

Thus, my main fear about Spartan is whether they have anything unique to give them an edge in customers' eyes? And can they almost as efficient as KR? I like the ethnic goods focus and that they're doing some things in meat/produce/bakery "around the edges" to help them stand out. That could work.

[DTEJD1997]

Hey all:

 

Yes, most of the grocers are "cheap".  If a couple/few things go the right way for SPTN, I think they may be the "cheapest" of the bunch and offer the best bang for the $$$$.

 

I apologize for the delay in getting the photos.  I got them, then I got called in to a legal project that had to get done....

 

This first set of photos is from a store I would consider being toward the higher end of the independents supplied by SPTN.  Not the highest, but getting up there.  It is in a better suburb of Detroit.  They have a HUGE beer/wine/liquor section.  They also seem to have an emphasis on packaged goods.  A tremendous variety with a decent amount of imports/local/gourmet.  Their produce section was relatively small.  Their deli/cooked foods section seemed to be a bit above average, but not the best I've ever seen.  The photos were taken after lunch on a weekday.  There were a decent amount of people shopping in the store, but it was not crowded.

[DTEJD1997]

Hey all:

 

The next photo is of a lower end store JUST outside of Detroit.  I would argue that it is low end due to the size and neighborhood that it is in.  It is less than a mile from the infamous 8 mile road.  I have not been inside of it, but may in the next week.  It is small in size, maybe 20k sq. ft. in size?

 

Now that I think about it, SPTN probably supplies almost 100% of the independent grocers in MI?

 

[DTEJD1997]

Hey all:

 

Last photo for today is a store near where I live and own my buildings/business, maybe 1 mile away?

 

I would classify it as the higher of "low end".  I actually shop in the store from time to time.  I use it to get items that I am lacking, never as "load up" shopping session.  I also frequently just get packaged items, as their produce quality/selection is weak.

 

As you can see, the store is reasonably large, maybe 40k+ sq. ft?  It is reasonably clean on the inside, but somewhat dated.

 

This store is most definitely family owned/operated.  A large family that probably has extended family (cousins & such) working, also maybe friends from here and back home?

 

I think there will always probably be a place for family owned/operated grocers in certain areas.  The family will work HARD, for crazy long hours.  Thus, they may have somewhat of an edge vs. the national chains?

 

If there is still interest, I will take some photos of other stores.  I am open to suggestions of whatever anybody wants to see.

[My Own Personal Hedge Fun]

Thanks for sharing the pictures! (Looks like the last photo did not attach)

 

I agree that more selection in those areas like alcohol, gourmet, local produce and meat, or discounted goods (overruns, close to expiration, etc.) is where most local stores can find their edge. But to me it looks like SPTN needs to get a lot cheaper before it gets interesting as an investment. I don't know why P/E isn't a good metric for groceries, but regardless looking at other metrics like EV/Sales it looks like KR is only slightly more expensive (or slightly less cheap) and they are drastically more productive.

 

I just learned about another chain called Grocery Outlet (GO) that just IPO'd a couple months ago, but I'll start separate thread on that one.

[DTEJD1997]

Thanks for sharing the pictures! (Looks like the last photo did not attach)

 

I agree that more selection in those areas like alcohol, gourmet, local produce and meat, or discounted goods (overruns, close to expiration, etc.) is where most local stores can find their edge. But to me it looks like SPTN needs to get a lot cheaper before it gets interesting as an investment. I don't know why P/E isn't a good metric for groceries, but regardless looking at other metrics like EV/Sales it looks like KR is only slightly more expensive (or slightly less cheap) and they are drastically more productive.

 

I just learned about another chain called Grocery Outlet (GO) that just IPO'd a couple months ago, but I'll start separate thread on that one.

 

Thank you for the response.

 

I will try to redo the last photo later in the week.  Perhaps I will go into the store and take some interior photos.

 

I was at another SPTN supplied store a few days ago, and noticed that some women were shopping with store cut vegetables & fruits in their cart.  They had onions & canteloupe & carrots cut for them.  So maybe there is a market & margin for this?

 

I think P/S and P/E is a perfectly fine way to evaluate SPTN.  This is especially so as senior management has made it abundantly clear that they believe their debt levels are a bit too high and that they will endeavor to pay down debt in the upcoming quarters.

 

Additionally, their margins are below historical averages.  Some of that is due to competition, some to bad luck, some to mismanagement.  Management is aware of this, and is working to rectify the situation.  I think that they will have SOME results going forward, perhaps not everything that they want...but something better perhaps 3-6 quarters from now.

 

If so, P/S and P/E perhaps may be the best way to look at things?

 

We will see!  It is certainly going to be interesting.

[My Own Personal Hedge Fun]

I agree. This is a pretty simple industry in terms of how to analyze financials. It's a difficult industry for management and investors in terms of making projections about the future.

 

When it comes to margins, my concern is historically their margins are about average for the industry. So just recovering that lost ground doesn't put them in a great spot.

 

Groceries is starting to look like airlines in the 80s-90s with big competitors willing to invest large sums and lose money to drive revenue. Makes it hard to feel like "now" is the time to get in. My hunch is it gets worse and we some once-in-a-generation buying opportunities. Or grocery execs are smart enough not to run themselves in the ground like the airlines did.

[DTEJD1997]

I agree. This is a pretty simple industry in terms of how to analyze financials. It's a difficult industry for management and investors in terms of making projections about the future.

 

When it comes to margins, my concern is historically their margins are about average for the industry. So just recovering that lost ground doesn't put them in a great spot.

 

Groceries is starting to look like airlines in the 80s-90s with big competitors willing to invest large sums and lose money to drive revenue. Makes it hard to feel like "now" is the time to get in. My hunch is it gets worse and we some once-in-a-generation buying opportunities. Or grocery execs are smart enough not to run themselves in the ground like the airlines did.

 

Projections about the future are always difficult...but I know for a FACT that people are going to want/need to eat food.

 

You are absolutely correct about SPTN's historical margins...nothing exciting, nothing exceptional, they were about middle of the pack.  They don't even have to get back TO that historical level, just get to 75% of it, and they are making a LOT MORE MONEY than they are now.

 

As to competition, I think SPTN, if run properly, can counter a lot of it.  They need to do the following:

 

A). Don't do anything stupid!  No huge capital expenditures, no crazy acquisitions, no goofy strategies.  Focus on good, consistent execution.  If they want to expand the butcher department in the higher end stores, great.  If they want custom donut kiosks, fine.  work around the edges to improve services & offerings.

 

B). Improve the margins and use the vast majority of free cash flow to pay down debt.  The company does not have to be debt free, but it can be WAY better than where it is now.

 

C). Try to maintain the current dividend under all reasonable circumstances.  That protects shareholders in the long run.  At today's 7% yield, if it can be maintained, you'll have good protection 5-10 years out from here.

 

D). If the competition wants to do something stupid, fight them, but don't get into a no win situation.

 

Here in MI, I think SPTN has some geographic protection.  If AMZN wants to open more stores, fine, they are going to have to buy/lease land, outfit the stores with shelves, freezers, carts, registers, and then find EMPLOYEES.  All of that is going to require capital, and TONS of it.  Why is AMZN going to spend tons of capital to lose $$$?  If they don't do it right, they are going to lose $$$ BIGLY.  Contrast that to SPTN.  SPTN is supplying operators that already have stores and have family/friends to work in them.  The local operators have somewhat of an edge against the big nationals (AMZN, KR).

 

Finally, SPTN may be a play on the improvement of Detroit.  For years, if you wanted to buy groceries in the city, you were going to buying at a SPTN supplied store.  There simply were NO national/regional operators.  Fast forward to today, and there are 2 Meijers, there is a Whole Foods, there are few Sav-A-Lots, and there are a few Aldi's in Detroit proper.  The grocery scene in Detroit is simply dominated by SPTN supplied independent stores.  Detroit is seeing a resurgence of people with MONEY moving back into it.  There is also a new auto factory being built for the first time in 35 years.  That is going to provide 3,000+ high paying jobs in a neighborhood that desperately them.  Suppliers are also announcing plans to build feeder factories and warehousing solutions in that area.  That is going to bring in MORE jobs.  That is also going increase demand for housing...and for food.  Along the lower East side (Jefferson Avenue), if I recall correctly EVERY grocery store is an independent SPTN supplied store.

 

Move to the suburbs, and SPTN still has a strong presence, but you've got plenty of regional/national competition.

 

So if SPTN can make some marginal improvements and come close to historical levels of margins & profits, they are going to be making a lot more money than they are today.

 

 

[Spekulatius]

I think the risk is not Amazon, which really caters mostly to above average people , but more discounters like Aldi and Lidl going in. Even if they get like a 10% market share, they would destroy margins for  the remainder, especially the low and mid end of the market. In our bifurcated world, the low and high end tends to strive , and the mid gets squeezed.

[DTEJD1997]

I think the risk is not Amazon, which really caters mostly to above average people , but more discounters like Aldi and Lidl going in. Even if they get like a 10% market share, they would destroy margins for  the remainder, especially the low and mid end of the market. In our bifurcated world, the low and high end tends to strive , and the mid gets squeezed.

 

At this point in time, in the Detroit area, SPTN tends to serve the middle and lower end.  There are some outlying high end/high service stores in the outer suburbs, but they are the minority of SPTN served locations.

 

I've shopped at USA Lidl many times in the NC market.  They appear to be having some "speed bumps" and I've heard rumors that they are scaling back the speed of their expansion.  At this point in time (and near future), I don't think there is any threat to SPTN from Lidl.

 

Aldi is most definitely a threat, and they have taken market share.  In this area, I am not sure about how much more they will take locally.  I think in the local SE MI market, Aldi probably has taken the market share they want. Nationally, I am sure they will take more share.

 

KR, WMT and Meijer are SPTN's largest competitors.  They have been operating here for a very long period of time.  Will they take market share?  Maybe? 

 

Could they lose market share?  I've cut back shopping at the mega stores simply because they don't have enough manpower and I've sometimes spent MORE time waiting in line to check out than I did shopping.  This is especially the case at Meijers.  Krogers is hit & miss, depends on the time of day.  WMT is also bad in terms of service.  So perhaps SPTN can take market share from the behemoths by offering more/better/quicker service?

[DTEJD1997]

Hey all:

 

I've got a couple of updates...

 

SPTN has about $45mm outstanding on their share buyback.  No shares were purchased in the last quarter.  I wonder if SPTN is going to be yet another one of those companies that buys back shares at high prices and then when the bottom falls out of the share price, they stop buying.

 

Another piece of bad news is if you get on the interwebs and look at the Google & Glassdoor for their reviews of Caito foods.  There are two big problems with this unit.  The biggest and perhaps easiest to correct are the myriad complaints from truckers regarding loading/unloading times at the warehouse.  Many truckers have now refused to take loads due to them waiting HOURS to get processed.  More efficient scheduling and manpower should be able to cut down on this.  In the investor presentation, management stated that it is taking longer for warehouse workers to get "up to speed" than it did just a few years prior.  Quality of workers available for warehouse work has apparently gone down.

 

The other problem is the low level management of Caito foods.  It is almost universally bad on Glassdoor.  Respondents tend to say pay is good, management is weak. 

 

I take the online reviews with a grain of salt...but the sheer number of negative ones is overwhelming and I think points out a problem. 

 

End result is that SPTN is apparently not making anywhere near what they expected to on Caito. 

 

The Caito acquisition was about $6/share for SPTN.  If they have a writedown, maybe it is 1/2 of purchase price?  So book value might go down about $3/share?  If they have a big writedown, I'm going to guess the price goes down further yet.

 

So I think SPTN's book value is almost certainly impaired.  Question is just how much?

 

End result is management has spent $200+m on a poor acquisition and now they aren't buying back stock?  Might need to be an even lower price than today and maybe get some management shakeup?

 

 

[DTEJD1997]

Hey all:

 

Just wanted to bump this thread as there are a few developments...

 

A). The dividend was RAISED from $.19/share to $.1925/share recently.  I was shocked by this.  Management knows better the condition of the business than I do, I hope they are right.

 

B). There are going to impairments with the Caito purchase, but perhaps not as great as I initially thought?

 

C). I took a small position a few minutes before the market closed on Thursday, at a price a bit below $9.50/share.  The stock price has been gyrating WILDLY (along with everything else).  I think this is a speculative buy.

 

If they can sell/liquidate/shutdown what they need to from the Caito acquisition, get a good new permanent CEO, slow down on expansion, focus on paying down debt, and catch a break or two...there is NO reason why this could not be earning close to $2/share in 12-18 months.

 

If most of the above can happen, no reason why this can't be a $20 stock in late 2021.