SpartanNash Company (SPTN) Q1 2022 Earnings Call Transcript

SpartanNash Company (NASDAQ: SPTN) Q1 2022 earnings call dated Jun. 02, 2022

Corporate Participants:

Kayleigh Campbell — Head of Investor Relations

Tony Sarsam — President and Chief Executive Officer

Jason Monaco — Executive Vice President and Chief Financial Officer

Analysts:

Chuck Cerankosky — Northcoast Research — Analyst

Spencer Hanus — Wolfe Research — Analyst

Scott Mushkin — R5 Capital — Analyst

Peter Saleh — BTIG — Analyst

Andrew Wolf — CL King — Analyst

Krisztina Katai — Deutsche Bank — Analyst

Presentation:

Operator

Good morning and welcome to the SpartanNash First Quarter 2022 Earnings Call. [Operator Instructions]

I would now like to turn the conference over to Kayleigh Campbell, Head of Investor Relations. Please go ahead.

Kayleigh Campbell — Head of Investor Relations

Good morning and welcome to the SpartanNash Company first quarter 2022 earnings conference call. On this call today from the company are President and Chief Executive Officer, Tony Sarsam; and Executive Vice President and Chief Financial Officer, Jason Monaco. By now, everyone should have accessed to the earnings release, which was issued this morning at approximately 7:00 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.spartannash.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. 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 these forward-looking statements. Please remember 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 non-GAAP financial measures to the most comparable GAAP measures.

And it is now my pleasure to turn the call over to Tony.

Tony Sarsam — President and Chief Executive Officer

Thank you Kayleigh, and welcome to SpartanNash. We are glad to have you on board as Head of Investor Relations. And good morning everyone. Thank you for joining us. On May 12, we provided our preliminary earnings results. And today, I’m happy to walk you through additional highlights of the quarter. As part of our winning recipe, we’re focused on transforming our supply chain. And this past quarter showed that our efforts are taking hold. We delivered an approximate 7% improvement in throughput year-over-year. We also secured more than $15 million in run rate cost savings meeting our initial full-year commitment of $15 million to $30 million annual savings ahead of schedule. We reached this significant milestone by leveraging data insights to create efficiencies throughout the distribution network. We now expect to achieve $25 million to $35 million run rate savings by the end of fiscal 2022. These two impressive accomplishments are a direct result of our supply chain transformation initiative, which is a foundational element for expanding our profitability and we are just getting started. I wanted to thank our supply chain leaders for their hard work and dedication in making this possible.

Moving to our Retail segment. Our team, our frontline store associates continue to deliver quality service to shoppers resulting in comparable store sales that were up 7.2% in the quarter. We are building on strong momentum in our retail business and we saw our market share grow. We are focused on providing exceptional service and market competitive pricing. This is helping us retain our current customers and shoppers who have recently discovered our stores. We remain committed to our mission to delivering the ingredients for a better life, to drive gross margin and create more value, we are expanding our private label brand penetration. Overall, our private label sales increased 13.7% year-over-year outpacing the company’s overall sales growth, that is really impressive.

Now turning to our Military business. I’m proud to say sales increased over the prior year quarter for the first time since Q1 of 2020. Additionally, we achieved Military adjusted EBITDA margins of 1.6%, exceeding our turnaround target of 1%. We are strategically positioning Military for success through a variety of initiatives and we continue to see opportunities to further increase the profitability of this business. One of these opportunities is around the recent extension of our private label contract with DeCA. Our Military distribution network gives us the unique ability to service 150 commissaries and 400 exchanges worldwide. We are proud to continue providing America’s military heroes and their families with great value and a taste from home and speaking of our unique global supply chain, we are currently leveraging our Military network to provide critical food and supplies to Ukrainian refugees across Eastern Europe.

Now turning to the impact inflation had during the quarter. While inflation was a tailwind for us, our performance also reflects the continued execution of our winning recipe and our supply chain transformation initiative. Looking ahead to the remainder of the year, we expect to continue operating in a volatile and inflationary environment. Our teams are going above and beyond to effectively manage through these uncertainties. Additionally, the impact of inflation on our results should taper in the second half of the year.

Turning to the labor environment. In order to attract and retain top talent in the labor market, we have taken several steps to enhance our associate experience. These include investments in wages, additional benefit, heightened focus on safety and training, associate recognition and streamline communication. We are seeing the benefit from these initiatives over the past two years, including 2.3 times higher than normal applicant flow and a 48% improvement in our safety incident rate.

Turning to strategic growth. During the past couple of quarters, we introduced our winning recipe, to finding who we are and where we’re going. The formula is driven by our three core capabilities: people, operational excellence and insights that drive solutions. If you visit the Investor Relations section of our corporate website, you can view the Q1 supplemental earnings presentation which provides an overview of our winning recipe.

Now I’ll get into some specifics illustrating how we’re executing on our plan. Last month as part of our e-commerce strategy, we announced the partnership with DoorDash. This partnership expands our grocery services and solutions across both our digital and physical platform and also enables us to empower our network of 2,100 independent retail customers. We’re now providing them with additional tools and resources they need to grow their businesses and expand our digital footprint. Additionally, we will be offering on demand grocery delivery from more than 100 company-owned stores. Our customer centric innovation is a key priority for driving growth. With this new omnichannel partnership, we will expand our customer base and capture more of the grocery retail market by rapidly scaling our digital offering. We also recently reached an agreement to acquire a three-star Michigan grocery chain, shop and save food centers. These stores will be converted into our popular Family Fare banner. Our focus right now is ensuring a smooth transition for our new team members and the customers they serve. We are also expanding sharper offerings through our robust loyalty program.

I’m also pleased to announce that the Stockton, California distributions center has been integrated into our network. Through our partnership with the Coastal Pacific food distributors, the 500,000 square foot multi-temperature facility is now fully servicing customers after a phased in launch. Having a West Coast presence allows us to provide faster, fresher and more cost-effective deliveries to our customers. The arrangement will also save roughly 1 million gallons of diesel fuel annually, while helping us reduce our fleet miles by 10% or more than 7 million miles. This agreement further advances our progressive work in ESG by reducing our carbon footprint. We anticipate lowering our greenhouse gas emissions by estimated 10,000 metric tons this year and we are not done yet. If you have not seen the document, I highly encourage you to review our inaugural ESG report which is available under the Corporate Responsibility section of our website at spartannash.com.

Now let’s talk about long-term targets. We have built a strong foundation based on our winning recipe and our momentum gives us confidence in the growth targets we recently announced on May 12. As a reminder, by 2025, we expect to grow net sales by at least 12% from fiscal 2021 to more than $10 billion. We expect to increase adjusted EBITDA by at least 40% from fiscal year 2021 to more than $300 million, and we expect to expand our adjusted EBITDA margins to 3% of net sales, an increase of 25% from fiscal year 2021. We are very pleased with the actions the current executive leadership team has taken, which is reflected in our performance. We believe our strategy provides a clear path to long-term growth and increased shareholder value.

Before I turn the call over, Jason, I would like to extend one more heartfelt thank you to our SpartanNash associates, whose operational excellence and keen focus on winning has made these results possible. Your hard work and dedication is transforming our company. On behalf of the SpartanNash executive leadership team, thank you for being our customer unsung heroes.

With that, I’ll now turn the call over to Jason to walk you through the first quarter financial performance in great detail.

Jason Monaco — Executive Vice President and Chief Financial Officer

Thanks, Tony, and welcome to everyone joining us on today’s call. Let’s jump into the detailed results. Net sales for the first quarter increased 4% or about $106 million to $2.76 billion compared to 2021’s first quarter sales of $2.66 billion. This growth can be attributed to positive sales in all three business segments. Our GAAP EPS came in at $0.53 per diluted share in the quarter compared to $0.54 per share in the first quarter of 2021. On an adjusted basis, diluted EPS for the quarter was $0.83 compared to $0.59 in the first quarter of 2021. On an adjusted basis, the increase in profitability from the prior year quarter was due primarily to improvements in the gross profit rate, where we saw an increase to 16.3% compared to 15.7% in the prior year quarter. Gross profit margin growth was driven by improvements within the Food Distribution and Military segments. Inflation during the first quarter led to higher LIFO expense, which increased $8.5 million over the prior year’s first quarter. This incremental expense is included in gross margin, but it’s excluded from adjusted earnings. The increase in gross margin was partially offset by higher SG&A costs, including higher costs in retail store and supply chain labor, increased fuel prices and higher incentive compensation related to strong company performance. In addition, our reported GAAP results also include $3.5 million of costs related to shareholder activism.

The labor market conditions continue to drive higher wages, additional use of over time and reliance on costly third-party contractors within our supply chain. Despite these headwinds, we’ve made significant progress on our supply chain transformation initiative during the quarter. This includes achieving more than $15 million in run rate cost savings reaching the range of our original full-year 2022 commitment ahead of schedule.

Turning to our segments. Net sales in Food Distribution increased by about $37 million or almost 3% to $1.37 billion in the first quarter, driven primarily by the favorable impact of inflation on pricing. We continue to see an upward trend in inflation as the quarter progressed. In fact, inflation exceeded 10% by the end of the quarter while certain categories including proteins and dairy continue to see the largest overall increases. Looking forward, our outlook assumes continued inflation for the remainder of 2022 with the impact on results tapering in the second half of the year.

Reported operating earnings for Food Distribution in the first quarter totaled $26.7 million compared to $21.1 million in the prior year quarter. The increase in reported operating earnings for the segment was driven by higher gross margins, partially offset by an increase in incentive compensation and higher supply chain wages. Adjusted operating earnings totaled $34.6 million in the quarter versus the prior year’s first quarter adjusted operating earnings of $22.3 million. Military net sales of $612 million in the first quarter increased by 4.7% compared to prior year sales of $584 million. The increase was driven by inflationary pricing partially offset by reduced case volumes. Notably, though Military case volumes declined in the first quarter, the rate of decline slowed compared to the trend experienced over the previous year. The first quarter reported operating earnings in the Military business of $1.4 million compared to a loss of $5.1 million in 2021’s first quarter reflects improvements in the gross margin rate. These benefits were partially offset by increased incentive compensation as well as increased supply chain labor expenses. The segment’s adjusted operating earnings of $4.7 million for the quarter is up $9.3 million from 2021’s first quarter loss of $4.6 million.

Retail net sales came in at $781 million for the quarter compared to $739 million in the first quarter of 2021, an increase of 5.7%. Our comparable store sales momentum remains strong at 7.2% for the first quarter. First quarter reported operating earnings in the Retail segment were $0.3 million compared to $14.2 million in the prior year quarter. The decrease was driven largely by market competitive pricing, higher utility and supply costs, investments in wages made throughout the course of 2021 and increased expenses. Retail adjusted operating earnings were $4 million for the quarter compared to $14.8 million in 2021’s first quarter. Each of the segments adjusted operating results exclude the impact of LIFO expense in both years and the costs related to shareholder activism in the current year.

Overall, we achieved a first quarter record adjusted EBITDA of $76.6 million compared to $64.8 million last year. The company’s ratio of net long-term debt to adjusted EBITDA increased slightly to 1.9 times compared to 1.8 times at prior year-end. The increase was due to strategic inventory purchases in the current quarter in anticipation of further product cost inflation and to maximize service to our customers. For the quarter, we generated $10 million of cash from operating activities compared to using $31.8 million of cash in operating activities in the prior year quarter. The increase in cash from operating activities compared to the prior year is due primarily to these changes in inventory. During the quarter, the company declared $7.7 million in cash dividends equal to $0.21 per common share. The company did not repurchase shares during the quarter. We currently have approximately $80 million remaining on our current share repurchase authorization and are committed to returning value to our shareholders through share repurchases as well as continued regular dividends.

As announced on May 12, we raised our fiscal 2022 guidance. The adjusted EBITDA range was increased by $10 million and is now expected to range from $224 million to $239 million. Adjusted EPS is now expected to range from $2.17 to $2.32 per diluted share. These updates to our EBITDA and EPS ranges recognize the strong start to the year across our operating segments. Improved gross margins in the Food Distribution and Military segments and ahead of plan supply chain transformation results, partially tempered by economic headwinds gives us confidence in the improved outlook. These headwinds include the impact of limited labor availability and rising wages as well as expectations of future interest rate increases.

We also raised our fiscal 2022 guidance as it relates to consolidated net sales with an updated range of $9 billion to $9.3 billion. Our outlook now reflects improvements in all three reporting segments. With the continuation of positive results in the Military business, we now expect Military full year sales will be negative 4% to flat as compared to the prior year. We also expect that Food Distribution sales will now be up 3% to 5% from the prior year and that retail comparable sales will range from positive 1% to 3%. We are delivering on our turnaround goals and are executing on our winning recipe while being focused on managing through volatile conditions to create sustainable shareholder value.

And now I’d like to turn the call back over to Tony.

Tony Sarsam — President and Chief Executive Officer

Thank you, Jason. We are very pleased with the continued momentum of our performance, which is a direct reflection on the actions we’ve taken across our business. We believe our strategy provides a clear path for long-term growth and increase shareholder value. Now, Kayleigh will make a brief statement, before we open the line up for Q&A.

Kayleigh Campbell — Head of Investor Relations

Thank you, Tony. As a reminder, the purpose of today’s call is to discuss our first quarter results and the progress we’re making through the execution of our strategy. Please keep our conversations focused on these topics. As it relates to matters involving our Annual Meeting, we remain in dialog with our shareholders and we’ll continue to ensure our actions are in the best interest of all shareholders. I encourage you to visit our spartannashtransformation.com website for more information and updates. Additionally, we have filed a definitive proxy statement, a white proxy card and other relevant documents with the SEC in connection with the solicitation of proxies for the Annual Meeting. Shareholders are strongly encouraged to read our definitive proxy statement and all other documents filed with the SEC carefully and in their entirety, because they will contain important information. Shareholders may obtain a copy of any documents filed by the company with the SEC at no charge at the SEC’s website or on our spartannashtransformation.com website.

Now I’d like to turn the call back over to the operator and open it up for your questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Chuck Cerankosky with Northcoast Research. Please go ahead.

Chuck Cerankosky — Northcoast Research — Analyst

Good morning, everyone. Great quarter. Could you talk about the retail sales a little bit with gas, I’m not sure, you excluded gas from the comps, but could you give some commentary on what the numbers look like without gas and how profitable gas was in the quarter and how gallons trended?

Jason Monaco — Executive Vice President and Chief Financial Officer

Good morning, Chuck, this is Jason Monaco. Thanks for joining this morning. On fuel itself, we saw fuel dollars naturally raise significantly with the higher price points. Gallons were up marginally in the quarter and profit margins themselves on a per gallon basis were about flat to last year. And to your first question, is it in comps? Its excluded from our comp sales of 7.2% and the continued momentum on that front.

Chuck Cerankosky — Northcoast Research — Analyst

Okay, that’s great. Now is that — strong comps, does that include anything you can tell that swept over from the pandemic? Or is it mostly just inflation because those are pretty strong numbers?

Tony Sarsam — President and Chief Executive Officer

Yes, they are great numbers. Hey, Chuck, this is Tony. The pandemic has waned obviously and what we look at now there are some habits from the pandemic that we think are going to be a little sticky for the longer — for the long haul, but I don’t think it’s temporary more at this point. So we have — with the inflation driving, we think we had almost about 10% inflation during the quarter overall. Naturally with that — naturally this follows with that there is a little bit, slight unit decline, but the team has done a great job overall of kind of managing the price for the consumer. It’s difficult, in the Retail space, do you find a way to make sure that you get pricing that consumers can manage in their budgets, and we did I think a really good job in managing our key value items to that and as I mentioned a moment ago, the — our own brands have done really, really well. We think with our own brand performance we’re seeing great growth there. Good quality products are there historically and currently and slightly lower price points in national brands. And the availability has been good. So I think the fact we have great partnerships and solid availability in the own brands has also been a component of driving our comps.

Chuck Cerankosky — Northcoast Research — Analyst

Are you able to comment please on what you’re seeing in terms of changes in product mix as a result of the acceleration in inflation and how fuel costs might be affecting in store purchasing habits?

Jason Monaco — Executive Vice President and Chief Financial Officer

Sure. And Chuck, this is Jason again. So a couple of things I’d highlight and if you step back and look at our business performance. As I noted before, fuel prices are up significantly and kind of the first order impact we’re seeing is, as Tony mentioned the performance in our own brands. Our own brands and private label portfolio is growing at about twice the rate of our non-private label portfolio. So we’re seeing consumer shifts on that front. Secondarily, just as a reminder, our store footprint and the products and the offerings that we have in our retail business, really cater to these sorts of needs. So for example, we are winning with those consumers that are loyal to our stores, but we’re also winning on what we characterize is kind of fill-in and smaller shops as well. So as consumers have perhaps less money in their pocket and they need to buy a smaller basket, the convenience that we offer with our supermarket formats is really winning and we’re seeing strong growth and performance on that front.

Chuck Cerankosky — Northcoast Research — Analyst

And then finally, with this cost of specific facility and Stockton, California, you say it’s been fully phased in. Is there an option for Spartan to purchase that? Are you leasing it in anyway? What are sort of the mechanics of how it fits in with your logistics network.

Tony Sarsam — President and Chief Executive Officer

Yes, great question. So I’d characterize it is a partnership really from start to finish. And we had a long partnership with Coastal Pacific on the Military side. The way that this arrangement works is, is that we are leveraging Coastal’s operation. They’re operating the site. We have a presence there to ensure we have quality and service to our consumers. But — or to our customers out of that site, but it’s on a kind of on a fee basis if you will. So if you think about this program, what it’s allowed us to do is to take about 10% of the miles out of our network by being located closer to our customers. It’s allowed us to have fresher deliveries to our customers on the West Coast. And last but not least, is that it’s allow us — allowed us to take over 1 million gallons of diesel fuel out of our consumption and 10,000 tons of carbon out of our carbon footprint. So we’re proud of the arrangement and the creative way that our teams have found and access to the West Coast that’s really been a win-win for the environment for our customers and ourselves.

Chuck Cerankosky — Northcoast Research — Analyst

Thank you.

Operator

The next question comes from Greg Badishkanian with Wolfe Research. Please go ahead.

Spencer Hanus — Wolfe Research — Analyst

Good morning. This is Spencer Hanus on for Greg. Maybe if we can just take a step back for a minute. Could you talk about how you’re thinking about the synergies between your three segments? And then when we look at the Military segment’s performance in the quarter generating almost $10 million of EBITDA. What is driving the inflection of profitability there and is there an opportunity to spin that business now that you’ve seen sort of the improvement in profitability there? Thanks.

Tony Sarsam — President and Chief Executive Officer

Great, thank you, Spencer. This is Tony. So the — our business, if you can go back to the winning recipe that we shared our corporate identity and how we think about our business and the difference we make for our customers and our shoppers. We have a unique way to leverage those business segments and we have — we’re fundamentally a wholesaler grocery, so it’s 71% of our business. We have a segment of our business that is retail 29% and because of those stores are full scale business they are larger on average than our customer stores, the 2,100 independent grocers that we serve. We have an opportunity to really understand what makes a difference of those folks. And we can model that, show them that and allows us to provide services and generate those services, everything from human resource services to IT services to category management, to how to think about pricing in different geographies, all that work together very nicely between the retail part of our business and the larger part business which is grocery wholesale. So we continue to leverage that. We’re getting great feedback as we’re taking the next step on that and mining the insights that can make a difference and drive solutions for our customers. And so we’re delighted where we are right now, we’re getting really good feedback from our customers on how that is all working together.

We’re also delighted about the performance of our Military. We had a great quarter. We had a great — a nice run. You may remember back to when I first got started here, I think job one with the Military to figure out how we can make it better and be a good operator to provide the ingredients for a better life to our Military men and women all across the globe. And we’ve done that. We’ve made operational changes. We’ve made improvements to our facilities. Improvements to our network and worked directly with DeCA to improve the network efficiency there. We have made improvements in our dray [Phonetic] arrangements with our manufacturing suppliers. All that is coming together and we have some great growth there on the profitability as you’ve seen.

We are still focused exclusively on making that a great business and that’s the focus of the team, that’s the focus of the overall organization. Certainly I think your question is it in a better position to sell now? It’s certainly better to sell some that’s making more profit and something that’s not, but that’s not our focus at all. Our focus right now is actually continuing the path of improving the operations, improving the service and we think that’s going to be a fine business and we don’t see any reason why it can’t be sustained profitability to the balance of our portfolio.

Spencer Hanus — Wolfe Research — Analyst

Got it. That’s really helpful. And then if we could pivot to the cost savings target you raised that $25 million to $35 million for this year from $15 million. What’s driving that change in outlook and then how much of those savings do you expect to contribute to the long-term $300 [Phonetic] million EBITDA target that you guys put out there?

Tony Sarsam — President and Chief Executive Officer

Yes. So I’ll start and let Jason pick up a little bit here too. So the — we’ve had really great success. Very proud of the work we’ve done in the transformation of our supply chain and the focus on operational excellence overall by the supply chain team. We have our throughput progress has been terrific. We’re ahead of schedule there. We’re ahead of schedule on some of the network changes that we’ve made and all of that has delivered savings and productivity is ahead of schedule. So we felt bullish on taking our number up for the year, and that number increase will carry over. The $25 million to $35 million that we’ve quotes for this year will continue and will continue to grow. Our team has the next wave of ideas and how the supply chain gets transformed. I mean, it will be a significant player within that $300 million. I would say probably, roughly, in the range of a quarter of the overall profitability on the way to $300 million will come from supply chain improvements,

Jason Monaco — Executive Vice President and Chief Financial Officer

Thanks, Tony. And kind of building that out maybe putting a little more detail on the performance thus far and where we’re headed. Just as a reminder, you may pick this up Spencer in the notes. There is a 7% increase in throughput and that throughput reflects pretty closely to our cost performance in the warehouse and in warehouse operations. But beyond that, as you kind of step back and think about the supply chain transformation as we’ve talked about before, you’ve got the warehouse operations, we also have network optimization where we’ve executed both the addition and the subtraction of sites over the last 12 to 15 months to ensure we’ve got the right locations and the right inventory at the right place, that together with transportation and route improvements and with improvements in the way that we manage our inventory of all have all delivered and frankly delivered ahead of schedule. So what we’ve done is taken that $15 million to $30 million run rate and we brought the bottom end of that forward by three quarters and raised the total guidance for the exit of this year to that $25 million to $35 million range. We feel good about it and that’s also playing a role in the raised guidance for the overall company performance. The plus $10 million EBITDA at both the bottom and top end of the range.

Spencer Hanus — Wolfe Research — Analyst

Got it. Really helpful and nice job this quarter. Thanks.

Operator

Next question comes from Scott Mushkin with R5. Please go ahead.

Scott Mushkin — R5 Capital — Analyst

Hey guys, thanks for taking my questions. Somewhat to unpack here. So one of the things I wanted, you guys said, this is more macro, I’m going to start there, that you expect and we’ve heard this from other companies and I just — I guess I would push back a little bit that inflation is going to somehow decrease as we move through the year. I don’t believe at least our research would say the Ukraine war is actually not even reflected in prices yet. And of course diesel continues to move forward — sorry, or up? So just wondering what gives you that confidence and how much are your guidance is dependent on this idea that things will get better?

Tony Sarsam — President and Chief Executive Officer

Yes. So we are working backwards. Our guidance is not tied to things getting better on the inflation front. We said we expect the inflation to wane. We’re looking at things like what we saw in the last month where inflation may go from 11% to 10%. We’re not talking about a quick retreat there. We agree that with the inflation you’re out of a long time, I think you’re right, I think the disturbances in the Ukraine is not fully — yet there’s a whole another wave of missed agricultural cycle which is going to be very significant from the war in the Ukraine. There are a number of other things on the horizon in our own country around the labor contracts and shipping ports and railroads and all kinds of other things that we may have. We may be looking at more supply chain disruptions and we may be looking at inflation rates that are more extended. Now — so that, when we talk about them declining, we’re talking about — we don’t think it’s going to be double-digit for the balance of the year. And we may have — try to see some contraction on that rate, because we had some of the overlaps in the end of last year. We tend to agree. We’ve been — we were early on this dialog that inflation is not at all transitory. It’s going to be here for a while. We’re in a cycle now that the underlying causes of the inflation are not quick fixes and they’re going to be around for a couple of years we think at least.

Scott Mushkin — R5 Capital — Analyst

That’s great color. Really great color. So then the other question I had, you guys went into this on in your kind of monologue. But I do want to push a little bit on the idea that it does seem maybe a kind of [Indecipherable] would say hey gosh, this military business and the distribution business almost looks like a turn on a dime from a profitability perspective. What would you say to that? Someone pushing back that way.

Tony Sarsam — President and Chief Executive Officer

They are pushing back to turn on a dime?

Scott Mushkin — R5 Capital — Analyst

Yes, that it turns so fast, that it’s got to be more temporary than permanent?

Tony Sarsam — President and Chief Executive Officer

I see, so you’re not arguing that we should be slower. Look, I think there is a saying that as — I’ve got a team here with seasoned operators that I’ve brought in and there are also things they saw that we could do very quickly. And so there were some things that came fast, but the thing that we have done and the changes we’re making right now in our warehouse, in our network, our permanent changes, whichever changes the delivery schedules to our commissaries in a way that is more profitable for us and maintains great effectiveness for the commissaries, we are working with our manufacturing suppliers to re-look our agreements with them and those are changes that are baked into contracts and they’ll be around. So I think we acted quickly because we had to act quickly. We had a business that was not doing so well when I first got here and we had to make very quick changes and we found some really good productive ones to make.

Scott Mushkin — R5 Capital — Analyst

Okay and my final one before I yield and this is real quick. Fill rates from manufacturers to you guys and then your fill rates to your customers.

Tony Sarsam — President and Chief Executive Officer

Great question. So fill rates from manufacturers as I’ve mentioned in the last couple of calls have remained disappointing. The manufacturers are suffering from the same types of problems that a lot of business are on staffing and other — and disruptions that come from the staffing issues. Our fill rates have been sort of the kind of stagger improving modestly from our suppliers. We are making better headway candidly internally in terms of the gap between what we receive and will get shipped out. So we are now — right now we are performing internally better than we were pre-pandemic in terms of here’s the portfolio goods we got versus we ordered, here is we’re going to fulfill on the way out of our business. That gap historically has been about 8 or 9 points of data, it’s around 6 to 7 points right now for us. So we feel great about our performance in still in a circumstance where we’re still receiving really tough numbers for our manufacturing community.

Scott Mushkin — R5 Capital — Analyst

All right guys. Thank you. And obviously a lot of heavy lifting done during the quarter. So congratulations to the team on that and good work, guys.

Tony Sarsam — President and Chief Executive Officer

Thanks so much.

Operator

The next question comes from Peter Saleh with BTIG. Please go ahead.

Peter Saleh — BTIG — Analyst

Great, thanks and congrats on the quarter. Tony, I think you mentioned that inflation was up about 10% in the quarter. I was hoping you could give us a little bit more color on the Retail comps, the really strong 7.2% number in the quarter. Can you break down a little bit, how much of that was actual pricing or basket increases versus maybe transaction growth. Just trying to understand how the consumer trend is in the quarter?

Tony Sarsam — President and Chief Executive Officer

Yes, great question. So what we’re seeing — right now we’re seeing an increase in trips to our stores. I think there is a little bit of — this is my opinion. There is a little bit of — going on out here. We have the scenario where people are getting out more as they’re getting more comfortable as the pandemic in a time when you might expect to be making fewer trips while gas prices are increasing. So you have kind of these competing effect, but we saw a pretty significant uptick in our trips. The basket size is smaller. The net of that was modestly negative roughly close to zero, but we’re seeing more trips, slight decline in units in the course than we have higher rings overall because of the inflation. So it’s a little bit of the mix of what’s going on. So we’re encouraged by the fact that people are coming in and we’re also seeing the mix of our customers more shoppers, that we’re adopting more shoppers into the loyalty category and more of them and we’re seeing more of them come in for routinely for their fill-in trip. So we’re seeing some really good things around the business to the stores and what we’re seeing on the overall basket, we think is sort of what you’d expect slightly lower units and of course higher prices.

Jason Monaco — Executive Vice President and Chief Financial Officer

Absolutely, Pete this is Jason. I’d just add modestly to that discussion. Just if you kind of back up and look at the same-store comps of 7.2%,as Tony said it’s largely inflation driven, but there is some moving parts beneath the surface. If you pull back the cover with trips and basket size. The other thing I’d point you to is that this retail business is performing what I would characterize as kind of at or better than the median for the general retail grocery space and so there is a lot of moving parts, but we think we carb well relative to the many of the other players in this space.

Peter Saleh — BTIG — Analyst

Thank you for that. Just maybe one more on the Retail segment. Can you just talk about what you’re seeing on wages and the impact there? It sounded like you’re starting to see some more applicant flow but maybe wages took another leg up just trying to understand your comments on that this morning?

Tony Sarsam — President and Chief Executive Officer

Yes. Great. So we are seeing better inflow of about almost 2.5% times sort of the normal applicant flow that we saw in sort of right around just pre-pandemic and during the pandemic. We believe that the combination of effect. We’ve taken our entry-level wages up as you know, we took up just almost 11% in 2021. We will probably take them up close that same number here in 2022. So there is it’s a big, it’s a big changes into the entry-level wages. The combination of wage improvements, benefit improvements, and what we’ve done with our overall culture of the organization got around training around communications, all those things woven together we think of what that has led to not just better applicant flow with better stickability once we would get here as well. If they find a home that they can say at. So we’re not of the woods yet. We think that the overall, there is a real tough shortage of good quality talent for all businesses and so we have to compete, we know that we have to compete on all those fronts. The opening offer has to be a solid entry level pay and that’s why we made those big changes.

Peter Saleh — BTIG — Analyst

Great. And then just lastly, nice improvement in the Military segment in terms of the margins there. Should we expect this going forward, is there any seasonality that we should be aware of or anything that would preclude you from kind of hitting these targets on a go-forward basis?

Jason Monaco — Executive Vice President and Chief Financial Officer

Yes, great question. We see ourselves as being passed in the 1% EBITDA margin range going forward. So as Tony said when he first got here, there was a challenge in that business. We’ve applied operational performance improvements. We’ve applied enhanced customer engagement practices and we’ve reached the 1% goal, and I expect that going forward we’re going to be continuing to run at or above that 1% level.

Peter Saleh — BTIG — Analyst

Great, thanks and congratulations.

Jason Monaco — Executive Vice President and Chief Financial Officer

Thank you.

Operator

The next question comes from Andrew Wolf with CL King. Please go ahead.

Andrew Wolf — CL King — Analyst

Thanks. Good morning. So on the distribution side, you just sort of went through on retail, kind of a real sales growth exercise. So if your sales were up almost 3%, 2.8% versus 10% inflation, simple math says cases not mix adjusted but cases would be down around 7%. So if there is something else going on like mix or something, maybe you can help us understand that? But also, why is that, is there some big customer that left the business we don’t know about or is it just the typical independent customer is not ordering as much at this juncture?

Jason Monaco — Executive Vice President and Chief Financial Officer

Good morning. This is Jason Monaco. Good to hear from you Andy. I think the one thing I’d call out here as we’ve mentioned this on some of the prior calls is, we’re still in the process of lapping the insourcing of some of the business that we used to do with DG. And we expected that to carry over through into the third quarter. So we’re on the kind of the phase down. It’s all out of the network, but you’re seeing that positive or the negative comps in this case from prior year.

Andrew Wolf — CL King — Analyst

Okay. So that’s the DG Fresh stuff. Can you say how much that is? So we can ourselves get a sense of how much is not going to go, how much better you’re cases will again…

Jason Monaco — Executive Vice President and Chief Financial Officer

What I’d suggest is that our — I would characterize the rest of our business looks a lot like the Retail business in our wholesale kind of core independent space.

Andrew Wolf — CL King — Analyst

Okay, that’s helpful. And back to Retail, you did mention competitive pricing. I assume for you guys it was a response to something in the market. So, was that response be your customers just naturally seeing inflation and going to discounters or are there other supermarket chains already starting to do something with their pricing like what is the dynamic that caused you guys to get more sharp on your pricing?

Jason Monaco — Executive Vice President and Chief Financial Officer

What I’d characterize that kind of the step back and think about the context that we’re operating in. We’re in a accel — had been in an accelerating inflationary environment. So when you think about competitive pricing, it doesn’t necessarily mean that we are taking prices down. It may mean the pace at which prices are going up to match the inflationary pressures on the back end, and as we think about understanding what our consumers need and managing through those price changes, what we want to do is ensure that we were sensitive to those consumer needs. We’re pricing properly. We are focused on the key value items in the stores and we feel good about the outcome and that we’ve — we drove that 7% plus comps. The flattish volumes in a rising price environment and maintained or grew share in many instances.

Andrew Wolf — CL King — Analyst

Okay. And lastly, Jason, just when you were answering 1 or 2 times on the cost savings and supply chain, I think you referenced productivity or throughput. Is that the main driver? I mean throughput being up 7%. It seems like quite an improvement. At this juncture is that the main driver of what’s in your — what you’re realizing in your results.

Jason Monaco — Executive Vice President and Chief Financial Officer

I’d characterize it is — I would characterize it is about half of the benefit. The remainder coming from transportation efficiencies, route efficiencies, network optimization, inventory management practices and the like, but it’s a significant portion in that throughput flows right to the bottom line.

Andrew Wolf — CL King — Analyst

That’s it from me. Thank you.

Operator

The next question comes from Krisztina Katai with Deutsche Bank. Please go ahead.

Krisztina Katai — Deutsche Bank — Analyst

Great. Good morning and congrats on a very nice quarter. I wanted to go back to inflation. I mean, you did mention sort of 10% or higher exiting the quarter from a food inflation perspective. Can you just talk about what you’re seeing specifically in Retail stores regarding consumer behavior? I know you said that private label is growing at double the rate which I would imagine means that there is some trade-down happening? But are you seeing any resistance to these higher prices? Do you think we have reached the ceiling and help us to think if inflation remains this high for a prolonged period of time?

Tony Sarsam — President and Chief Executive Officer

Yes, it’s a great question. So we are, so first and foremost we remain very vigilant in the study of this because there is not a playbook that exists for the last 40 years on how consumers will behave. We haven’t had the advent of prolonged double-digit food inflation in this country since the 1970. The world is quite different back then. So we’re learning along the way as well. We’re seeing somethings that look like that we might expect that we’re seeing. I mentioned earlier, a little bit of slight to the private label and looking for ways to get a great experience at a lower price to those vehicles. So we obviously had mentioned that, you mentioned just a second ago. We’re also seeing really strong growth in fresh and fresh is a higher — typically higher cost, higher margin part of the store. So we think that we will see is that people will look for ways to save money on non-key value items that are sort of everyday items for them and look for ways to actually maintain some element of indulgence and find a way to explore the continued choice of living through to food at home.

And so I think there’ll be a little bit of bifurcation, we’re certainly seeing that, as an example, we say inflationary market flowers might not be seen as a really important staple, but our floral business is up and then we’re doing quite well. We’re doing well with — our deli business is doing well. So it’s a prepared meals that I think people still are seeking convenience and an easy way to get a solution and our deli business is doing quite well in that regard. So — and I should know that this is a complicated analysis with deli business might be doing well, because people are not going to the restaurant. We don’t know the precise reason while we were making those choices. But we’re seeing — again we’re seeing really strong growth in fresh, strong growth on a lot of those higher cost, higher margin items, at the same time it will be very aggressive in center store trying to find their way to lower priced items.

Jason Monaco — Executive Vice President and Chief Financial Officer

Yes, Krisztina this is Jason. I would say, just adding to that demand for food at home trends is likely to continue as this food inflation place consumers and we’re here to bring solutions to those consumers, whether it’s prepared meals or private label offering to ease the budget, but we believe price sensitive behaviors are going to continue to strengthen as we continue to work through this inflationary cycle which as Tony said is I would characterize is unprecedented but unprecedented in the business lines of probably everybody on the phone today.

Krisztina Katai — Deutsche Bank — Analyst

That makes sense. Thank you for that. And I guess just one question on the supply chain, which obviously remains very challenging. I think you mentioned the ongoing tightness in the labor market although it sounds like it is improving. Can you just talk a bit more about some of the improvements that you are seeing, especially from a logistics operations perspective to really overcome some of these challenges as we think about supply chains essentially remaining dislocated for longer than we initially thought?

Tony Sarsam — President and Chief Executive Officer

Yes. So we have certainly dialed up the — our focus on improving the overall logistics part of the — transportation part of our business. We have always mentioned that piece of our co-subsidy that was a big hit that we’ve talked about already today, but additionally we’re looking at ways that we can actually repositioning it closer to our shoppers — to our consumers, customers through our network DC and there’s a lot of great tools and new science that allows you to be more efficient in that regard. So we are just wrapping up a transportation management system that’s going — that went live here just recently and it’s giving us some great insight about how we can maintain overall effectiveness in the network and be more efficient. So that will continue to be a big focus for us. It’s cost in an area that’s escalating faster because of the fuel pricing and diesel pricing. So we’ve seen — as Jason mentioned earlier, we’ve seen some of that here in this last quarter, some of those improvements in productivity came from that area. It’s a significant part of our future growth in that pathway to 2025 as well. So it will continue to be a focus for us.

Krisztina Katai — Deutsche Bank — Analyst

Great, thank you so much and congrats again on the good quarter.

Tony Sarsam — President and Chief Executive Officer

Thank you.

Operator

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

Tony Sarsam — President and Chief Executive Officer

All right. Well, I’d like to start by just thanking everyone for their participation in today’s call. We still look forward to speaking with you again when we report our second quarter 2022 results. So with that, I wish everybody a great day.

Operator

[Operator Closing Remarks]