SpartanNash Company - Q4 2022

Transcript

Speaker 0

Good morning.

Speaker 1

At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. I would now like to turn the call over to Kelly Campbell, Head of Investor Relations.

Speaker 2

Good morning, and welcome to the SpartanNash Company's Q4 fiscal year 2022 earnings conference call. On the call today from the company Our President and Chief Executive Officer, Tony Sarsom and Executive Vice President and Chief Financial Officer, Jason Monaco. By now, everyone should have access to the earnings release, which was issued this morning at approximately 7 am Eastern Time. For a copy of the earnings release as well as the company's supplemental earnings presentation, please visit SpartanNash's website at www.spartanash.com/investors. This call is being recorded and a replay will be available on the company's website.

Before we begin, the company would like to remind you that today's discussion will include a number of forward looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward looking statements. If you will refer to SpartanNash's earnings release from this morning As well as the company's most recent SEC filings, you will see a discussion of factors that could cause the company's actual results to differ materially from those forward looking statements. Please remember that all forward looking statements made today reflect our current expectations only And SpartanNash undertakes no obligation to update or revise these forward looking statements. The company will also make a number of references to non GAAP financial measures.

The company believes these measures provide investors with useful perspective on the underlying growth trends of the business and it has included in the earnings release A full reconciliation of certain non GAAP financial measures to the most comparable GAAP measures, which can be found on Spartan Ash's website atwww.spartanash.com/investors. And now, it is my pleasure to turn the call over to Tony.

Speaker 3

Thank you, Kaley, and good morning, everyone. 2022 was a transformational year at SpartanNash. Our corporate identity, which we call our winning recipe, served to align our associates as they executed on our strategic plan. Our success in 2022 Was made possible by our talented and hardworking associates who play to win. Speaking of our terrific associates, before we dive into our 2022 results, want to take a moment to recognize a group of associates who are Special Olympics athletes.

This month, we led a company wide fundraiser in our stores To support Special Olympics, we've enjoyed a 39 year relationship with Special Olympics and we are proud to support our 16 associates We are actively training to compete in the upcoming summer games. We encourage anyone listening today to join us in supporting this great organization. All right. Turning to our performance. In a dynamic operating environment, our team drove solid Q4 and fiscal 2022 results.

Our full year top line results were squarely in line with our most recent guidance as we're having raised our expectations throughout the year And adjusted EBITDA came in around the top end of our guidance. This is an increase of nearly 14% compared to last year. I want to call out 3 of the many highlights from a pivotal year. First, we secured cost savings in connection with our supply chain transformation. Part of this transformation involved optimizing our fleet mileage through the addition of a West Coast distribution solution.

Of course, taking miles of the system also advanced Our sustainability progress. Additionally, our sell rates continued to improve, while throughput increased by 7% for the full year. And by the end of the year, we secured more than $25,000,000 in run rate cost savings. Our success in supply chain helped enable us to gain share in our Wholesale segment. We expect our supply chain transformation to make even greater strides in 2023, which includes custom operational plans for each distribution center.

There are more savings and efficiencies to come as we strive to reduce footsteps and fingerprints in our process. I want to extend my sincere thanks to all supply chain associates for their progress in improving The second highlight in the year is that we created additional consumer offerings Through digital partnerships with DoorDash, Uber Technologies and Shipt. We also leveraged insights from our marketing innovation work to further our progress to unlock opportunities within our retail segment. Our comparable store sales remained strong, increasing 9.1% for the quarter. This was an increase of 110 basis points sequentially from Q3.

We also continue to deliver unit share growth year over year Fueled in part by our strong own brands performance. We're building on this momentum with investments in store renovations. We plan to renovate about a quarter of our stores by the end of 2025. As a third highlight, we launched and made meaningful progress on our merchandising transformation. We are focused on creating enhanced offerings and value for our customers and store guests in several ways.

To start, we're making significant strides linking sales, profitability and customer loyalty drivers across our wholesale and retail segments. Secondly, we are leveraging insights to enhance our category management capabilities and we are improving our customer offerings. We also remain focused on our cost policy capabilities, which protect customers from unjustified vendor cost increases based on underlying commodity markets. And we are revamping our end to end fresh food offerings with an initial focus in produce. Finally, we are investing in wholesale deals and new retail promotions to offer more value for our customers and store guests.

Customer focused innovation is an important ingredient in our winning recipes. We expect our merchandising transformation will have a meaningful impact to our business I want to pivot now to discuss our inorganic growth. The M and A framework we shared on our Investor Day is now deployed. We finished the year strong by adding Great Lakes Foods to our distribution network. We're proud to welcome our newest associates in Menominee, Michigan, whom I had the pleasure of visiting recently.

This acquisition brings 100 new customers to our portfolio Allows us to further optimize our supply chain network throughout the Midwest. We're excited about the opportunities this expansion provides. As we look ahead, our team is energized by the progress we've made and we are united in our commitment to our winning recipe. It goes without saying that all businesses are evolving in this dynamic operating environment, so we must stay focused on delivering value to our customers and store guests I'd like to remain competitive. This morning, we provided our 2023 guidance and raised our 2025 long term sales target To $10,500,000,000 We remain committed to achieving adjusted EBITDA of more than $300,000,000 which is an increase of at least 40% since 2021.

We are confident in our ability to achieve this aggressive target as we continue firing on all cylinders to advance our mission of delivering the ingredients for a better life. All right. I'll now turn the call over to Jason to walk you through the financials in greater detail.

Speaker 0

Thanks, Tony, and welcome to everyone joining us on today's call. Let's jump into the detailed results. Net sales for the 4th quarter increased more than 10% to $2,300,000,000 versus 20 21's 4th quarter sales of $2,100,000,000 The growth versus prior year was driven by both the wholesale and retail segments, each of which were favorably impacted by inflation. Gross profit for the Q4 was $341,000,000 or 14.8 percent of net sales compared to $323,000,000 or 15.4 percent of net sales in the prior year's 4th quarter. The gross profit dollar increase was driven by higher sales, while the rate decline was driven by cycling the higher inflation related price gains in the prior year and an increase in LIFO expense of $5,700,000 or 21 basis points.

As a percent of sales, our reported operating expenses increased 58 basis points from prior year, Primarily due to cycling the transition impact of the paid time off policy change in the prior year from a grant based time off policy to an accrual based policy. The transition resulted in a $21,400,000 reduction in our balance sheet accrual and a corresponding one time gain in the prior year. Also contributing to the increase in expenses as a rate of sales were higher corporate administrative costs in the current year, which included upfront in the merchandising transformation initiative. The increases in expenses were partially offset by a reduction in the supply chain expenses driven by our supply chain transformation initiative as well as lower health care insurance costs. Our reported 4th quarter net earnings were $700,000 representing a 97% decrease compared to net earnings of $22,200,000 In the prior year's Q4, net earnings reflected a steep increase in interest rates, which represented a $5,100,000 increase in expense, A drag of $0.11 on both reported and adjusted EPS.

Overall, we delivered $47,200,000 in adjusted EBITDA for the quarter, Representing a nearly 10% increase compared to $43,000,000 in the prior year's 4th quarter. Turning to our segments. In the 4th quarter, net sales in wholesale increased $151,000,000 to $1,630,000,000 An increase of 10.2% when compared to the prior year's Q4. This increase was due primarily to the inflationary impact on pricing, which increased net sales by 11.8% compared to the prior year. Although sales volumes were down modestly By 1.6% for the segment compared to prior year, they were up in our military channel over 6% due to continued strong demand.

The wholesale segment adjusted operating earnings totaled $13,600,000 in the quarter versus 20 21's 4th quarter adjusted operating earnings $7,000,000 reported 4th quarter operating earnings of $300,000 compared to operating earnings of $10,100,000 in the prior year's 4th quarter. The decrease in reported operating earnings was due to cycling a $10,100,000 transition impact related to the PTO policy change in the prior year, A lower gross profit rate, primarily driven by a $6,300,000 increase in LIFO expense and increases in corporate administrative costs. The increase in expenses were partially offset by reduced supply chain expenses. Retail sales came in at $678,000,000 for the quarter compared to $613,000,000 in the Q4 of 2021, An increase of 10.5%. Our comparable store sales momentum remained strong, increasing to 9.1% for the 4th quarter.

Our comparable store sales increased by 11.2% due to inflation, partially offset by a 2.1% decline in unit volumes. Our 4th quarter retail adjusted operating earnings were $8,500,000 compared to $13,600,000 in 20 21's 4th quarter. Reported operating earnings in the Retail segment were $8,500,000 compared to $23,300,000 in the prior year's 4th quarter. The decrease was due to cycling and $11,300,000 transition impact related to the PTO policy change in the prior year, A lower gross profit rate and increased corporate administrative costs. Our reported fiscal 2022 net earnings Were $34,500,000 a decrease of over 50% compared to $73,800,000 in the prior fiscal year.

Overall, for the full year, our adjusted EBITDA was $243,000,000 compared to $214,000,000 in the prior year. Turning to the balance sheet. Our leverage ratio remains strong, increasing slightly to 2 times compared to 1.8 times at the prior year end. This includes higher long term debt and finance lease liabilities of $98,000,000 for the year. The increase was due primarily to funding acquisitions during fiscal 2022 totaling $41,500,000 as well as changes to working capital.

For the full year, we generated $110,000,000 of cash from operating activities compared to $161,000,000 in the prior year. The decrease was due primarily to changes in working capital just mentioned. In fiscal 2022, we paid 29 point $7,000,000 in cash dividends equal to $0.84 per common share. We also bought back more than 1,000,000 shares of the company's stock For a total of $32,500,000 In total, we returned more than $62,000,000 to shareholders during the fiscal year. To ensure strong ongoing liquidity, this past November, we entered into an amendment to our credit agreement.

The principal changes of the amendment Included an extension of the maturity date of our loans from December 18, 2023 to November 17, 2027. It also resets certain advance rates for the borrowing base. As covered in today's press release, We're providing our initial guidance for fiscal 2023, which incorporates both the elements of our long term strategy and current expectations for the 2023 supply chain and grocery environment. Overall, we expect the strong results from this past year to continue into 2023, With net sales expected to increase from fiscal 2022 within a range of $9,900,000,000 to $10,200,000,000 In wholesale, we expect sales to grow between 4% 7%, inclusive of net sales from Great Lakes Foods. We are projecting that trends in our independent customer base will be similar to that of our corporate retail segment.

We also expect to see growth within other areas of our portfolio. In retail, we believe sales will continue to increase, resulting in an expected comparable sales growth range of 2% to 5%. Our guidance includes an anticipated increase in our profitability over the prior year. Expects fiscal 2023 adjusted EBITDA to be in the range of $248,000,000 to $263,000,000 compared to 20 22's adjusted EBITDA of $243,000,000 Interest expense is expected to continue to increase significantly in fiscal 2023 and our expectations for the higher rate environment are fully incorporated into our results. We currently anticipate interest expense to range from $37,000,000 to $42,000,000 this year.

Our fiscal 2023 guidance reflects total planned capital expenditures in the range of 130 to $145,000,000 for the fiscal year, which includes investments in both our core operations as well as our growth initiatives. We also wanted to give you some color on our expectations when looking at the cadence of our adjusted EBITDA throughout the year. In addition to our continued commitment to investing in our business to support future growth, we will be lapping a few notable impacts from Q1 of last year. During the Q1 of 2023, we will cycle significant inflation related price change benefits, also known as forward buy, of nearly $10,000,000 In addition, we will also be cycling $4,000,000 in retail wage investments that were implemented at the end of Q1 last year. We expect that our supply chain and merchandising transformation initiatives will offset some, but not all of these headwinds in the Q1 of 2023.

We anticipate we will begin realizing benefits from our merchandising transformation in late Q1. These benefits along with continued cost savings from our supply chain transformation give us confidence that we will reach our adjusted EBITDA range this year and remain solidly on the path to achieving our long term targets. Looking ahead, we remain focused on our mission to deliver the ingredients for a better life. Despite uncertainties in the broader market, we've built a strong foundation and continue to execute on our winning recipe. The actions we're taking through our supply chain transformation, merchandising transformation and other key initiatives are positioning us to effectively manage through this volatility.

We look forward to building on our momentum in 2023 and beyond to further drive results and grow sustainable shareholder value. And now, I'd like to turn the call back over to Tony.

Speaker 3

Thank you, Jason. In addition to reporting earnings today, we are also wrapping up a successful virtual We look forward to seeing our customers and vendors during our upcoming in person expo this summer in Grand Rapids. And this year, we're inviting our sell side analysts to the event. Taylor can provide your teams with more details. Before we open the call to questions, I want to take a moment to recognize an impactful cultural shift.

As a people first company, we prioritize our associates' Safety. Our recent actions in remote safety include more accountability and executive level review of all lot climate issues and additional safety training. We want each associate to return home safely to their loved ones every day. I'm proud to report that the investments we have made in this critical initiative Have decreased our lost time incidents by 72% since 2020. Associate safety will continue to be a main area of focus and We have plans to roll out more initiatives in 2023.

I want to take one more opportunity to thank our associates To continue to execute with operational excellence, as part of our people first culture, we believe in meaningful recognition for their hard work. Over the past 2 years, we have implemented programs to recognize our associates and their achievements. Again, thank you to all of our associates and congratulations for an outstanding year. With that, I'd like to turn the call back over to the operator and open it up for your questions.

Speaker 1

Please be prepared to ask your question when prompted. And our first question comes from Spencer Hanus from Wolfe Research, your line is open.

Speaker 4

Good morning. Thanks for taking the question. Really helpful disclosure on the unit performance during the quarter, but can you talk about how that trended versus 3Q results? And then as we look to 2023, How are you thinking about the contribution from both units and then also inflation?

Speaker 0

Hey, Spencer. Good morning. This is Jason. Thanks for joining and for the question. Thinking about unit volumes themselves and the trends, the last couple of quarters, we've seen Similar trends in unit volumes in the business.

When I think about the go forward and you maybe pick this up a little bit in The cadence commentary in the earlier remarks, we're coming off of a record Q1 last year That Q1 included some of the kind of continued COVID bump from last year as well as significant Price change and inventory related benefits are oftentimes what we call forward buy. So we're projecting that we that our Q1 will be Down kind of high single digits from an EBITDA standpoint. And that's really reflective of the broader environment coming off of a record year and frankly, some of the uncertainty in the market. At the same time, we feel really good about our long term plans. We feel good about where we're headed this year and this year is a great stepping stone as We talked about in our Investor Day, towards that $300,000,000 EBITDA growth.

Speaker 4

Okay. So do you expect units to be down next year and then most of the growth to be driven by inflation or

Speaker 0

just how are you thinking about sort

Speaker 4

of those things next year?

Speaker 0

Yes. In 2023, our guidance reflects continued inflation albeit moderating through the year And continued weakness in unit volume. Importantly, our unit volume has outperformed the market And we've grown share in that space throughout the year. We've had some nice share performance And we expect that similar trend of slightly down volumes and stronger revenues to continue to play out. However, at the same time, when you think about the consumer and consumer sentiment, we see this as an uncertain time and we want to plan accordingly.

Speaker 4

Yes. Got it. And then just one more on the long term guide. You raised the top line by about 5%, but you reiterated the EBITDA target. So just curious Sort of what led to that decision around EBITDA and reiteration there?

Thanks.

Speaker 0

Sure. Great question. So On the top line, we want to be respectful that inflation has frankly played a role in the revenue profile And that we're still committed to driving organic growth in the business. We took the range of revenue up As a result of that and as a result of our successes thus far and our expectations for growth going forward, When you think about the margin profile or the EBITDA piece, what we've seen is really strong margin per unit increases, But not necessarily margin percent increases because the nature of this business doesn't necessarily Show or doesn't necessarily drive margin percent in a highly inflationary environment. So we continue to drive dollar growth, which we think Creates long term shareholder value and performance for our investors.

Speaker 1

Our next question comes from Andrew Wolf of CL King. Your line is open.

Speaker 5

Hi, good morning. Congratulations on ending such a year so solidly. So I wanted to ask about the acquisition of Great Lakes Foods. I might have missed this, but I'm trying to get a sense of the sales contribution, Sort of if I did a pro rata based on the 100 customers they have versus the Wholesale ex militaries, somewhat over 2,000 customers. That would and I thought the sales were about the same, it would be something over $200,000,000 Is that roughly close to the contribution or Did you actually have an 8 ks filing or something that I maybe missed?

Speaker 3

Yes. It's a we've been high, this is Tony. So We picked up that business in the Upper Peninsula and sort of Eastern Wisconsin. Great business for us, great folks overall, Roughly 100 customers and roughly kind of $90,000,000 to $100,000,000 So they're going to be Smaller customers on average versus kind of the broader portfolio.

Speaker 5

Got it. Okay, great. Thank you. Very helpful. Similar on the if I took out military from the case count, Just on the traditional non military business, mainly independent supermarkets, it seemed that would obviously be down somewhat more.

Is it more close to what the market Sort of the grocery market at large is down sort of low to mid more mid single digits in cases?

Speaker 0

Yes, ex the military channel, unit volumes are down kind of mid single digits In that space, our military business, I'd be remiss if I didn't highlight continues to perform very well. We delivered Single digit, mid single digit growth, unit volume growth in that business that's coming off of mid single digit growth in the prior quarter and low single digit the Q2, we've seen a really nice momentum change there as we've turned the business around, but also really focused on getting the right solutions for patrons working together with DECA and ensuring that those solutions are in place to drive performance. So we're really pleased with the trajectory there and really energized

Speaker 5

Got it. If I could ask maybe 1 or 2 more on labor inflation, it was Trending up for your last quarter at least, and I'm sure it's still up. Do you have a sense of like how you're feeling about normalization in wage rates, In particular, is there some normalization on the horizon or is it sort of too soon to call that?

Speaker 0

Yes, I think it's I don't think

Speaker 3

it's too soon to call some normalization, Tony, again. So we're seeing better applicant flow right now based on the wage actions we took in 2021 2022. Our turnover rate is still not where we'd like it to be, but stabilizing, it's getting better. We actually hit our glide path of our turnover goals for most of the second half of last year. So we see good positive trends there.

And I think there's going to be some spot adjustments we'll have to make where there's some More difficult still some more difficult hotspots like drivers, for example. But I see it moderating this year and coming back maybe closer to We would have seen in the 3, 4 year ago timeframe.

Speaker 5

Okay. Thank you very much. I'll get back in the queue.

Speaker 0

Thank you.

Speaker 1

Our next question comes from Kelly Bania of BMO Capital Markets, your line is open.

Speaker 6

Hi, good morning. This is Ben Wood on for Kelly. Thank you for taking our questions. First, can you just walk us Through any consumer behavior you're seeing in your stores or hearing from customers, any incremental trading down or increase in private label penetration or share shifts That may have happened over the quarter. And then kind of related on the supplier side of that is any new learnings from the merchandise initiative?

Do price increases appear to be abating? Any insights there would be helpful.

Speaker 3

Great. This is Tony. I'll take a crack at that. So, a couple of things. So For the quarter, we had overall basket sizes Up about 8.5%, it was in dollars, a little better than it was the previous couple of quarters.

We saw our traffic continue to be better than a Year ago, about 1.5% for the quarter. And items that were also just a wee bit better than they were in In Q2 and Q3. So the overall trips are up, units are down of course as Jason mentioned a moment ago. And overall, people are looking for that mix of value that I talked about in our last earnings call, where you see a lot of folks are looking for Getting a great deal or getting great cost on like items, and then once in a while splurging So I'll give you a couple of examples. So we're seeing still seeing a movement in the meat, for example, to more brines and chicken, which is sort of expected.

So our pounds are strong, but the overall, they say the Cost per pound, people are looking for ways to get reasonable deals on protein. And so we saw more growth on hamburger and chicken during the quarter again. We're also seeing really strong growth on our own brands. Our own brands had a great quarter overall grew by 18.5%. Penetration of our own brands is up.

It was up for the year and up in the quarter. That growth rate is about roughly 2.5 times The growth rate of the national brands, we see people who are finding own brands as a solid replacement, good quality product at a lower price. We saw that in every quarter of last year and it was particularly strong in the Q4. And I think you had a question about supplies also. I'll address that quickly.

So we saw obviously an Extraordinary amount of pricing all throughout 2022. That wasn't any different. As a matter of fact, it was the strongest in the 4th quarter. We are I would say we're seeing a reduction in the price requests as we finished up the year. But still since it was still significantly higher than what we would have seen maybe 2, 3 years ago.

So while the pricing request and the absolute pricing Isn't at its peak level, it's still higher than we prefer. The reason why as we talked in the last call about this merchandising transformation And really holding our suppliers accountable for, they obviously have a right to take pricing. We want to make sure that we're protective of our customers and our shoppers at the same time and that we're not seeing extraordinary Pricing that maybe out of line or unjustified versus the cost inputs that they're seeing. And we're looking for partnerships that can allow us to win with those suppliers and win for our customers and we're getting really, really good response overall. So we're finding folks who want to win And want to look for opportunity to provide more deals and sort of stabilize the really extraordinary inflation that our shoppers and customers have seen in the last year or so.

Speaker 0

Yes. Collectively this is Jason. Collectively, I think it's we can't reinforce enough the momentum that we're building in our own brand And Tony alluded to this before earlier in the comments. In the quarter, our sales in our own brand and our retail operations were more than double the growth That we saw across all of our retail business and that included not just dollars, but unit growth. So we feel like we're bringing a terrific offering, bringing it to consumers and meeting them where they are with respect to their pocketbooks, Providing the right value and ensuring that we build as much stickiness as possible, so they continue shopping our stores.

Speaker 6

Great. Thank you. And then just one question longer term. You guys called out in your Analyst Day and your long Term targets kind of looking at a $250,000,000 to $100,000,000 or $125,000,000 to $150,000,000 In supply chain and merchandising transformation initiative benefits, and then you did it sounds like you did 25 this year. Are there any Explicit targets you have for the year ahead or how do we think about the breakdown of that remaining supply chain and merchandise transformation initiative benefits In the long term guide?

Speaker 0

Yes, Ben, we continue to progress both the supply chain and merchandising transformation work. They're both tracking Consistent with our plan that we shared at the Investor Day and we expect the merchandising transformation to begin driving performance here By the end of the Q1 and we expect continued momentum and additional savings in supply chain. Both of those are in this year's guidance and reflective of the long term plan. And you mentioned the Supply chain performance thus far, we exited the year with $25 plus 1,000,000 of performance on that. We expect that to be a strong base To next year's or to this year's plan.

Speaker 6

Great. Thank you.

Speaker 1

And our next question comes from Chuck Cerakoski of Northcoast Research. Your line is open.

Speaker 7

Good morning, everyone. Can you comment please on the store remodeling Object is, I think you said 25% of the store base by 2025. What are sort of the priorities there? Are there any Geographic areas or banners that especially need my renovation and how much of this is going to be Significant remodeling versus just the paint the stores sort of thing and what level of relocations might be involved in that, please?

Speaker 3

Okay, great. Great question, Chuck. This is Tony. A couple of points. So As far as the relocation, right at the moment, we don't have any relocations that are planned in that mix.

So and the remodels will be It won't be just pay for store type of stuff. We would we do some of that, but those are sort of low end sort of maintenance type of Remodeled or just kind of housekeeping. So these would be more substantial than just the simple refresh, but they'll run the gamut. We know Some of them will be in the high 100 of 1,000 of dollars, some will be multimillion dollar remodels as well. So It depends on the needs of the store and as we assess what the value of that remodel can be, it'll run the gamut.

So, we have we did a handful of D and Ws here in the Grand Rapids area this past year The performance has been really strong. So we had the 4 remodels we did here are growing at about twice the rate of the balance of our stores in So about 17% plus growth in those stores. We're seeing a good return in terms of The customers embrace what we've done with the remodel, which is a little bit of a hint about we're going to be focused probably a little bit more on the upmarket Stores early on, so there's those are higher volume stores and greater opportunity for return from those stores. We also see that we have a need to make sure that all of our stores stay current and relevant with the shopper base. So By 2025, we will do a quarter of the stores.

We'll keep marching after that. We want to make sure we have a predictable cadence of remodels that allow us to present The shopper, what they want, they need those needs changed. So you'll see more of them even after 2025.

Speaker 0

Yes. And Chuck, I'd add to that. In addition to the major remodels, We're doing and we talked about this at the Investor Day. We're going through banner consolidations and included in those banner consolidations are not simply A change of the name on the front of the store or just some paint on the walls, but we're reintroducing loyalty programs, doing a 360 marketing program At those stores and reinvigorating the surrounding markets around those locales. So I think for us, it's not just Yes, reconstruct the store for the sake of doing it or just simply putting a new badge on it, but ensuring that we've got the right brand promise to our shoppers and our consumers and then we bring that brand and that brand promise to those consumers through loyalty and other means.

And you'll also see those As part of the capital plan and even in 2023.

Speaker 3

Thank you.

Speaker 8

This is Jessica Taylor on for Christina. Thanks for taking our question. Just wanted to ask about your fill rates and whether they're at a level that you would have seen pre pandemic or a place You're happy with them. And to follow along with that, are you seeing that like the promotional environment remains rational. Are you seeing that there's a pickup in promotion?

Are you able to pick up promotion based on better fill rates? Thank you.

Speaker 3

Yes, great question. So a couple of things. So the fill rates are nowhere near what they were Pre pandemic, they're much better than they were last year, but to give you some perspective, as we finished up 2021, For example, and into the early 2022, we were seeing fill rates in the high 50s, 55%, 56%, 57%. We're now seeing fill rates that are in the low 70s and they are and by the way, those fill rates from a year ago With the lowest spill rates we had in the pandemic era, lower than they were when people got the original shocks Right after the shutdown. So they can say they spent between the spring of 2020 And the early part of 2022, the fill rates from food suppliers continue to go down.

They picked up in the back half of the year. We had Q4 was a pretty big improvement over the previous Q4. And so we're now, as I mentioned earlier, we're sort of in the low to mid 70% fill rates, but those fill rates would have been in the mid-90s Pre pandemic, like the week before the pandemic. And so we're seeing we are seeing more liability. We're seeing some food Liars are still really struggling, and dragging the number down.

But the overall, we're seeing improvement there. Maya, what we believe in the work we're doing right now, the combination of Merge transformation and then as folks See the realities of the limits to which they can continue to take pricing that the next adventure for the food The broader community is going to be how do we get back on track and how do we get back and for the CPG companies, how do we get back on growing share. So our belief is that we're seeing some early signs of that now and we're seeing that they are opening up and running Longer doing the changeovers required to make sure they can meet supply needs that we have and our shoppers expect. And I think we'll see this year very significant improvement on fill rates as that CPG community besides go chase share again. And it'll come with I believe it'll come with more promotions too and those are some of the discussions we're having with folks right now.

Speaker 8

Thank you.

Speaker 0

Maybe pivoting to promotional landscape just to kind of close out that piece. Overall on the kind of on the year, we saw promotional product count pick up early in the Q4, but then it eased by the end of the quarter. So Not sure there's a whole lot to read into that yet. More kind of if you kind of take a look at the whole year, The number of products that were promoted was more limited and not surprisingly given the comments Tony described with Back to the supply chain, so more focused promotional products. And when we think about the environment itself and how we've participated and played, Spartan Ash has aligned from the standpoint of frequency and depth with our primary competitors And we continue to do so.

Speaker 8

Thank you.

Speaker 1

There are no other questions at this time. I will now turn the call back over to Tony Sarsim for closing remarks.

Speaker 3

All right. Well, thank you and thank you all for your participation in today's call. We look forward to updating you on our continued progress throughout the year. With that, from our family to yours, we'd like to wish you all a very pleasant good morning.

Speaker 1

That concludes today's conference call. Thank you for joining and have a pleasant day.