SpartanNash Company (SPTN) Q3 2022 Earnings Call Transcript

SpartanNash Company (NASDAQ:SPTN) Q3 2022 Earnings Call dated Nov. 09, 2022.

Corporate Participants:

Kayleigh Campbell — Head of Investor Relations

Tony Sarsam — Chief Executive Officer

Jason Monaco — Executive Vice President, Chief Financial Officer

Analysts:

Chuck Cerankosky — Northcoast Research — Analyst

Andrew Wolf — CL King — Analyst

Unidentified Participant — — Analyst

Spencer Hanus — Wolfe Research — Analyst

Christiana Riley — Deutsche Bank — Analyst

Presentation:

Operator

Good morning, and welcome to the SpartanNash Company’s Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kayleigh Campbell. Please go ahead.

Kayleigh Campbell — Head of Investor Relations

Good morning, and welcome to the SpartanNash Company’s Third Quarter 2022 Earnings Conference Call. On the 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 access to the earnings release which was issued this morning at approximately 7:00 a.m. Eastern time. For a copy of the release as well as the company’s supplemental earnings presentation, please visit SpartanNash’s website at 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, which can be found on SpartanNash’s website at www.spartannash.com/investors. And It is now my pleasure to turn the call over to Tony.

Tony Sarsam — Chief Executive Officer

Thank you Kayleigh, and good morning everyone. We are coming off an absolutely epic week at SpartanNash. On Monday, we took our People First culture up a notch with the big Halloween celebration. On Wednesday, we hosted our first Investor Day in New York. I’d like to thank those of you who attended. It was a pleasure getting to know you better and sharing more about our long-range plan and company’s strategy. Last Thursday we had the opportunity to ring the NASDAQ Opening Bell. We came prepared with our own cowbells ring and the energy in the room was electric. We also featured photos of associates from all levels of the company under seven-story Nasdaq tower in Times Square. Then on Friday we celebrated eight female leaders from SpartanNash at the Top Women in Grocery awards. And this week we salute our military heroes on Veterans Day. We are proud to employ many veterans within SpartanNash and to serve our military commissaries and exchanges. Thank you to those of you who have served our great nation. We are forever grateful for your service.

Now, turning to our long-term goals. We have driven significant shareholder value since the start of our turnaround and we are building on this momentum. We have a clear incredible strategy, detailed programs in place, and a purpose-built leadership team. Our entire team is energized about continuing to execute on our winning recipe and the path to achieving our long-term targets. Despite significant macro headwinds we expect to achieve more than $300 million in adjusted EBITDA by 2025. This goal will be achieved through long term value creation from continued organic growth, the successful supply-chain transformation, our recently launched Merchandising Transformation, and the work we’re doing around our brand identity and marketing innovation. Additionally, we continue to evaluate inorganic opportunities which would be incremental to our adjusted EBITDA target.

Now, jumping into our results. This morning we announced our full third quarter results following last week’s preliminary release. Compared to prior year we increased both net sales and adjusted EBITDA by approximately 11%. In the Wholesale segment which now includes we historically reported as Food Distribution and Military, we grew the topline by more than 11% adjusted EBITDA by more than 30% compared to prior year. We are really pleased with these significant improvements in cost rate realized from our supply chain transformation. At the end-of-the quarter we reached an impressive 97% on-time delivery rate year-to-date, and compared to the prior year quarter wholesales fill rate improved by 4% while its throughput rate improved by a stunning 8.5%. As of the end of the quarter, we secured a $24 million in run-rate cost savings from our supply-chain transformation. We’ve made great progress in achieving our transformational goal of $25 million to $35 million in cost savings by the end of this year.

In retail, our comparable store sales remains strong, increasing 8% for the quarter. Our gross margin expanded sequentially by 88 basis-points compared to the second quarter. And we are pleased that we delivered total retail year-over-year unit share growth due in part by our strong OwnBrands performance, with share growth both in dollars and units. Building on our marketing insights, our retail team has developed a detailed plan to ensure consistency of execution and a local hometown experience every time shoppers visit our stores. Our strategy includes adding investments in our people, differentiated above and beyond customer service, a better in-stock position, and new shoppers loyalty benefits. Year-over-year growth in our fresh volume has outpaced the rest of the store. We are committed to the best and fresh and recently rolled-out our 200% Money Back Guarantee program.

Our recently renovated D&W Fresh Market stores bring unique product offering to the Michigan-based Market banner. These modern stores offer a terrific shopping experience and are materially outpacing our company average. Now more than ever we remain laser-focused on our mission of delivering the ingredients for a better life. We are committed to providing food solutions for our wholesale and retail customers during this unprecedented inflationary environment. Our retail shoppers and the consumers [Indecipherable] independent customers are eating more at-home while continuing to seek [Indecipherable] food experiences. Our OwnBrands offer a great option to satisfy these indulgent craving while not emptying not shopper’s wallet. Our marketing innovation continues to drive results and our team is just getting started. As we build our private-label programs we are unlocking even more opportunities to help our independent retail customers and our own shoppers combat inflation.

Now, I want to touch on our Merchandising transformation which is a key component to reaching our 2025 goals. Our merchandising team’s vision is a customer-led focus to offer the ingredients for a better life which resonates with our winning recipe. The key pillars include products and services customers can’t live without, unbeatable value and sustainable growth. I’d like to share a little about what we’re doing to offer unbeatable value. As a food solutions company, we are focused on combating rising food costs whether the customer is buying at a regular price or on promotion. Our merchandising team has upgraded their data-driven approach to comparing vendors cost increases with the underlying input cost based on commodity markets and other industrial benchmarks. Our methodical cost management helps drive growth and provide value for our wholesale and retail customers. We are providing an opportunity for our vendors to join us on the sustainable growth journey, and I’m happy to report that many leading vendors are partnering with us to find creative solutions during this inflationary environment. We look forward to providing you with regular updates as we build on our Merchandising Transformation. I am confident that the pillars of this program based on market leading capabilities will drive both top and bottom-line results.

Before turning the call over to Jason, I wanted to highlight our recent guidance increase for fiscal 2022. Our adjusted EBITDA range is now $237 million to $242 million, growing at approximately 12% versus the prior year. The updated guidance was driven by the ongoing benefits we are realizing from the supply chain transformation and our year-to-date results. Looking forward we remain confident that we have the right team in place to execute on our winning recipe and drive growth both near and long-term. I’ll now turn the call over to Jason who will walk through the quarterly financials in greater detail.

Jason Monaco — Executive Vice President, Chief Financial Officer

Thanks, Tony, and welcome to everyone joining us on today’s call. Before we jump into our results, we announced a change to our operating segments. As noted in last week’s pre-release, we combined our Food Distribution and Military segments into a new wholesale segment. This change reflects the way we manage the business as one comprehensive distribution network and furthers our efforts to streamline operations, transform our supply-chain and better serve our customers.

Now for our detailed results. Net sales in the third quarter increased almost 11% to $2.3 billion versus 2021’s third quarter sales of $2.1 billion. The growth versus prior year was driven by net sales in both the wholesale and retail segments, each of which were favorably impacted by inflation. Gross profit in the third quarter was $351.2 million or 15.3% of net sales compared to $329.5 million or 15.9% of net sales in the prior year quarter. The gross profit increase was driven by higher sales while the gross margin rate decline was primarily driven by an increase in LIFO expense of $9 million or 36 basis-points. In addition to the impact of LIFO, lower Retail margin rates were partially offset by improvements in margin rates within the Wholesale segment. As a percent of sales, our operating expenses decreased 34 basis-points from prior year, reflecting efficiencies from our ongoing supply chain transformation. These efficiencies were partially offset by higher corporate administrative costs including incentive compensation expense and upfront investments in our Merchandising Transformation initiatives.

Overall we achieved an 11.3% increase in our third quarter adjusted EBITDA of $57.3 million compared to $51.5 million last year. Our reported net earnings were $9.5 million. Our ratio of net long term debt-to-adjusted EBITDA for our third quarter increased slightly to 2.1 times compared to 1.8 times at prior year end. The increase was due primarily to inflation-driven increases in working capital.

Now turning to our segments. Net sales in wholesale increased $165 million or 11.3% to $1.63 billion in the third quarter, driven primarily by the favorable impact of inflation which exceeded 14% in the quarter. Although case volumes were down modestly for the segment compared to the prior year, military cases were up an impressive 6% due to strong demand within the Military Channel. The overall decrease in case volumes for this segment included lapping DG’s 2021 in-sourcing initiatives. As planned, the impact of DG’s insourcing fully cycled in September of this year. The decrease was also due to a modest decline in case volumes in the independent channel, consistent with market trends.

Reported operating earnings for wholesale in the third quarter totaled $14 million compared to $5.9 million in the prior year quarter. The increase in reported operating earnings was due to higher sales and lower supply-chain expenses partially offset by higher corporate administrative costs and LIFO expense which rose $8 million in the current quarter. Adjusted operating earnings totaled $25.3 million in the quarter versus 2021’s third quarter adjusted operating earnings of $11 million. Retail sales came in at $667 million for the quarter compared to $609 million in the third quarter of 2021, an increase of 9.5%. As Tony mentioned, our comparable store sales momentum remained strong at 8% for the third quarter, an increase of 150 basis-points sequentially from the second quarter.

Our third quarter reported operating earnings in the Retail segment were $5.3 million compared to $16.8 million in the prior year quarter. The decrease was due to a lower gross profit rate along with investments in retail wage rates and corporate administrative costs. Retail adjusted operating earnings were point $8.1 million for the quarter compared to $17.8 million in 2021’s third quarter. In the first three fiscal quarters of 2022, we generated $7.5 million of cash from operating activities compared to $144 million in the prior year period. The decrease was due primarily to the changes in working capital mentioned a moment ago.

Through the third quarter, we paid $22.5 million of cash dividends equal to $0.63 per common share. We also bought back more than 755,000 shares for a total of $23.3 million. In total the Company returned $45.7 million to shareholders through the first three quarters of this year. At the end of the third quarter, we have approximately $56 million remaining on our share repurchase authorizations, and we’re committed to continuing to return value to shareholders.

With regard to our 2022 guidance, we are reiterating the guidance raised announced last week in advance of our Investor Day. Our new full-year net sales range is expected to be between $9.5 billion and $9.7 billion. And as Tony mentioned, our adjusted EBITDA is now expected to range from $237 million to $242 million, while adjusted EPS is now expected to range from $2.27 to $2.37 per diluted share. This update to our adjusted EBITDA and EPS profitability ranges recognizes the benefits from our supply chain transformation and ongoing solid growth but is tempered by retail margin headwinds and the impact of our Merchandising Transformation investments.

Wholesale net sales are now expected to increase between 6.5% and 8% from last year. We also expect retail comparable store sales will increase 6% to 7.5%. These updates reflect both trends observed in the quarter as well as our updated expectations for the remainder of the year. Prior guidance has been recast due to the combination of the previous Food Distribution and Military operating segments into the wholesale operating segment. These recast figures can be viewed in the third quarter supplemental deck posted on the Investor Relations portion of our website.

Our team has continued to build on this momentum and outperform expectations, and we are extremely pleased with the execution of our winning recipe. We remain committed to driving results and continuing to grow sustainable shareholder value. And now, I’d like to turn the call-back over to Tony.

Tony Sarsam — Chief Executive Officer

Thank you, Jason. As a people first organization, I want to take a moment to thank our associates. This past quarter our leadership team gathered to celebrate our top-performing frontline associates. We honored truck drivers in our fleet, cashiers in our retail stores, orders selectors from our warehouses and other essential workers. These frontline associates have gone above and beyond everyday to deliver the ingredients for a better life for our customers, store guests and their fellow associates. Congratulations this year’s winners and thank you to the entire SpartanNash team for their dedicated service.

Our people are the reason for our success and a key part of why we are positioned to win. We are executing on our winning recipe and we are pivoting from our turnaround to growth. Beyond the result we expect to achieve this year we have a plan to add $1 billion to the top-line. The plan will also enable us to achieve more than $300 million of adjusted EBITDA by 2025, and any additional M&A will be supplemental to this target. We are executing on our plan and implementing our strategic initiatives to reach these goals. With that, I’d like to turn the call-back over to the operator and open it up for your questions.

Questions and Answers:

Operator

Thank you, very much. We will now begin the question-and-answer session. [Operator Instructions] The first question from the line of Chuck Cerankosky from Northcoast Research. Please go ahead.

Chuck Cerankosky — Northcoast Research — Analyst

Good morning, everyone. Great quarter, congratulations. Tony and Jason if you could. Can you give us a view on where you think your customers heads are at by various retail segments such as your own stores or independent grocers, etc. Based on how they’re reacting to economic news and of course the reality of inflation, higher fuel prices, by giving us a look into what they’re buying or trading into, and not necessarily down but I suppose there is a fair amount of that.

Tony Sarsam — Chief Executive Officer

Yeah, happy to, Chuck. Thanks for the question. So a couple of things. So obviously the — we can start with data. We have growth associated with inflation, revenue growth, and we have — we see what’s going out with our unit growth and pound growth and our [Phonetic] stores et-cetera, and as we feel — it was a fairly predictable US [Indecipherable] associated with the inflation. So we’re seeing cases are — like they were the previous quarter, are down maybe 2.5-ish points and we did near 10 — 10 plus percent of inflation, netting out to kind of the 8% growth overall for the same-store. So if they are making those decisions, they’re making trade-offs because their obviously income has not risen as fast as inflation. What’s going on underneath that though is a couple of things that I think are sort of interesting. One, we have I think also a fairly predictable higher growth rate on our OwnBrands which typically offer very similar quality to the national brands at a lower price. And so our OwnBrands are growing at kind of 2.5 times the rate of the comparable national brands so we’re looking out more toward those OwnBrands as a great option to just stretch their dollars. We see people who are making trade-offs on sort of — in some areas like I used the example I think maybe the last quarter but it [Indecipherable] gotten more accelerated where people are making trades and buying maybe less stake in more hamburger as an example. We’re also seeing a, lot of growth in the higher value added meat. Though at the same time if you’re making some trade-downs on their protein to get more kind of protein for their buck, we had really, really strong growth on our house made items like our seasoned meat, our hand trimmed meat, our [Indecipherable] which are a higher cost per pound. And we saw a little bit the same behavior in the great recession where you had people who were trying to stretch their dollars, in that case because they had fewer dollars not because of the inflation, but they’re making trade-offs of things where they’re starting to get a good value for — overall which — similar quality for lower price, and then still seeking indulgence. And I think that’s instructive for us. It tells us that we need to be sharp on whatever we offer our folks in terms of value, that’s why having great OwnBrands matter, that’s why this Merchandising Transformation matters so much. And it means that there is an opportunity for us to continue to serve people and serve them with the joy of food and provide things that are indulgent where they can have a great experience at the dinner table. So we think — we look at all those things very carefully and and we’re learning along the way. So hope that answers your question.

Chuck Cerankosky — Northcoast Research — Analyst

It did, thank you.

Operator

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

Andrew Wolf — CL King — Analyst

Hi, good morning. Wanted to ask about our focus on expenses and ask you — I mean, consolidated expenses showed good leverage. But as I kind of just sort of parse through it, it appears to me that it’s a little more skewed towards the wholesale side of the business with obviously throughput and has some leverage, big leverage, as well as some of the supply chain expense although I guess that could go to retail. So could you give us a little color on how the expenses — and I think you called out expenses like wage rates at retail being up, just a sense of how much operating leverage there was within either quantitatively or more qualitatively in each of the segments, how they performed relative to each other on the expense line?

Tony Sarsam — Chief Executive Officer

Great, I’ll take a stab at that and then hand it over to Jason for a little more detail. I think broadly we feel pretty good about the leverage. There’s really kind of two things going on and you hinted at both of them. One is on the business overall, we’re getting a good leverage so we have great productivity programs in our supply chain and our supply-chain transformation has guided our folks to working smarter and more efficiently, more effectively and that’s what’s allowing for the leverage in that environment that is also experiencing some cost pressures on wages, so we’re seeing really solid leverage there because of the throughput numbers that we mentioned on the call. On the retail side, within the store we had as you may recall over the course of the last year, I’d say really some extraordinary cost increases on labor wage rates. And the overall wage rates for our entry-level positions are close to 30% increase over the last kind of 12 plus months. And they are all averaging in the neighborhood of 15%, while in a normal year that would have been — those numbers would have been substantially lower, probably 5 times, 6 times which is normally experienced in that timeframe. So those wage rates kind of keep up which is a source of lot of inflation that we discussed, have lent themselves a little less leverage in the short-term. We see — I would say we’re also positive about the outlook for that and getting better leverage overall in our stores but in this transitionary phase we certainly had to invest money in our wages and that’s why you may see a little bit of pressure on margin.

Jason Monaco — Executive Vice President, Chief Financial Officer

Thanks, Tony. Only a couple of things I’d add to that Andrew, and I would say that was a great overview. Just a reminder on the throughput on the wholesale side it’s running roundabout 8%. And we’re seeing that flow-through to lower cost per case movements in the supply chain and then flowing naturally into our wholesale businesses. On the retail side, to kind of dial back the clock a little bit and Tony mentioned the wage increases. The starting wage increases in retail are — have gone from $10 an hour to $13 an hour. Now that doesn’t represent the full portfolio of labor — the labor costs, but it’s indicative of the front-end of the scale and it’s really a driver of — it’s among the largest drivers of our wage increase impacts in our retail segment. You may recall when we set guidance at the beginning of the year we expected to see our wage impacts, our labor impacts to be a multiple of what they typically are due to the inflationary pressures that were going to be north of $50 million. The bulk of that or the largest proportion is going to be in our retail segment. And we’ve seen that flow-in in the last few quarters as those wage increases are hitting our expenses. So it’s coming about as we expected. It is a significant uptick. And it’s an investment in the people and in the long-term viability of our retail model that we talked a little bit about last week.

Andrew Wolf — CL King — Analyst

Okay, and just a follow-up. You mentioned higher incentive comp and other costs. And also the Merchandising, the upfront costs in the Merchandising Transformation, are those kind of loaded equally into both segments or proportionately, or just one segment have more of that than the other?

Jason Monaco — Executive Vice President, Chief Financial Officer

I would say just think about them as weighted based on the nature of the segment and the volumes of the businesses there. And on the incentive piece, just to kind of pull-back on that one, the company is over-performing so incentive compensation expenses are higher and are recorded ratably through the year based on the performance of the business, and then kind of assigned to the segments based on their share of the total business. On the Merchandising Transformation, I should think about that weighing more heavily on our wholesale business as we focus on the wholesale piece, and the buying procurement of goods and doing that effectively going forward.

Andrew Wolf — CL King — Analyst

Great, that’s helpful. Thank you.

Jason Monaco — Executive Vice President, Chief Financial Officer

Thank you.

Operator

Thank you. The next question comes from Kelly Bania from BMO Capital Markets. Please go ahead.

Unidentified Participant — — Analyst

Hi, good morning. This is Ben Wood on for Kelly. Thank you for taking our questions. You guys have touched a little bit on the disparity between kind of wholesale margin and retail margin rate. I’m just wondering if you could provide more details on the retail side. Are there any signs of the pressures easing, or what would it take to see retail margin rates turnaround? And then kind of assuming your retail stores are a good proxy for your independency serve, what are the risks, the challenges that retail more broadly start to impact kind of wholesale performance.

Jason Monaco — Executive Vice President, Chief Financial Officer

Yeah, and thanks for the question, Ben. This is Jason. Thinking about the margin structure itself at retail level, to kind of address what how we think about the potential second and third order effects across the the wholesale business. Sequentially, our retail business improved gross margins. So your question on have we hit the bottom, what’s the plan and is there an opportunity to improve margin. We saw sequential improvement in our retail business from Q2 to Q3. So we feel good about the progress that we’ve made and that our teams have made to continue to pound out a little extra margin in that business. But we’re seeing more broadly as we’ve talked about the last couple of quarters is not different from what the rest of the retail grocery market is seeing with respect to challenges with margin, and we continue to be smart about it and be precise with how we deploy our pricing so that we get the best deal for shoppers and we find the right balance for margin on our side.

Thinking about our independent customers, one of the benefits of being a retailer and a wholesaler is that we don’t have to, imagine what it’s like to be operating in the retail space. We see it every day and we operate in that way every day. This is one of the unique benefits we bring to our independent wholesale customers. So I would expect that our independents are experiencing the same challenges we have and it’s really another reason for us to redouble our efforts and focus on our Merchandising Transformation because frankly when our customers win we all win together.

Unidentified Participant — — Analyst

Awesome. Great, thank you. And then just one more if I may kind of switching to the wholesale side, thanks for providing the details on case volume. But wondering if you’re able to kind of frame that in sort of case volume versus 2019 for independents and change amidst the ex DG and Military. Just trying to get a gauge more broadly what type of any kind of channel shifts you guys may have seen over kind of the course of the pandemic.

Jason Monaco — Executive Vice President, Chief Financial Officer

Yeah, I think maybe starting with the Military piece. We saw significant — as you know we saw significant shifts in movement away from the Military segment. We’ve seen that recover and we’ve seen in the third quarter we delivered north of 60% unit volume growth in the Military segment. So just to kind of put that in perspective and how we think about it is if you look at publicly available data on unit volume in retail grocery, units are down low to mid-single digits. If you look at publicly available data, our units are up in the Military segment or we’re up in the third quarter by north of 6%. So we see the Military seeing a significant channel shift with performance that’s around about 10 percentage points better than market norms.

In our retail and independent space we see the unit volume performance tracking relatively similarly between our independent retail businesses. And importantly on our retail side, we’re growing share. So we’re outperforming the market with respect to unit volumes and we’re very proud of that, and have plans to continue to build that going forward.

Unidentified Participant — — Analyst

Great. Thank you.

Operator

Thank you. The next question comes from Spencer Hanus from Wolfe Research. Please go ahead.

Spencer Hanus — Wolfe Research — Analyst

Good morning, thanks for taking the question. Just shifting to your long-term capex guidance, it calls for a pretty significant step-up over the next few years. So with that step-up in spend where do you think you can take cost per case and throughput over time, and where are those metrics trending today versus where the industry is at?

Tony Sarsam — Chief Executive Officer

The metrics on the cost per case you mean?

Spencer Hanus — Wolfe Research — Analyst

Yeah, and throughput.

Tony Sarsam — Chief Executive Officer

Yeah. I don’t — we don’t have thorough information I think on the external on cost per case. The business is very — it’s not a bad question but I don’t have that at my I fingertips right now. We — In terms of the capex spending, the shifting capex spend we go to more work essentially on growth and on productivity than we would have done in the recent past. The overall capex is essentially aligned with similar competitors, have similar-sized businesses, a combination of wholesale and retail. But you’ll see more investments in our stores and remodeling for them for better growth and better presentation to shoppers, and more investments in our overall supply chain to make the supply chain more efficient. So broad stroke that’s for the additional capex…

Jason Monaco — Executive Vice President, Chief Financial Officer

Yes, thanks, Tony, and great question, Spencer. We see significant runway still in our cost per case, real opportunity to continue to build that going forward. And the capital that we’re deploying is really building strength around both specific programs and belt and suspenders type investments on that side of the house [Indecipherable] we deliver a terrific product to our customers in a very efficient way. Further to Tony’s point, we’ll be building out and linking together with our vendor consolidation a real focus on ensuring that we’ve got the right customer experience tied with each of our banners and the brand expectations that shoppers have for those banners. So we’ll be investing in store renovations that support and engage consumers in that way. And I’d be remiss if I didn’t say that along the way though we are raising our long-term capex requirements over the three-year window of this plan. We also expect to nearly double the return on invested capital that we’ve been delivering and we feel really good about that plan. This capital is going to help us get to the $300 million plus million of EBITDA driving long-term shareholder value.

Spencer Hanus — Wolfe Research — Analyst

That’s helpful. And then can you remind us how many of your transactions are captured by the loyalty program today, and with the upcoming relaunch of that program, how do you think that impacts comp momentum and then also your ability to potentially build an ad network and interface better with CPGs over-time as well?

Tony Sarsam — Chief Executive Officer

I don’t think we have a good data on that. We’re still building out the loyalty program. We have parts of our business that didn’t have a loyalty program, we had a different one. So it’s still sort of pie in the oven so to speak. So unfortunately I don’t have a great answer for you on the current state. In terms how we think about the future state though, we think there’s a lot of value so — in that piece. So — and we’re getting in the early read on some of the enhanced [Indecipherable] program, we’re getting good uptick. So, Jason,

Jason Monaco — Executive Vice President, Chief Financial Officer

Yeah, maybe a little bit more color on that. We have — we’ve got our participation in the loyalty program is north of 50%, some markets it’s north of 85%. For us if you think about the way that we expect to deploy data and the linkage with consumer behavior, we expect that this program will allow us to get closer to those consumers to really — to drive consumer specific promotional activities and to really make it again together with the the banner focus, the brand expectations and the shopping experience that our consumers have in each and every store.

Spencer Hanus — Wolfe Research — Analyst

Great thank you.

Operator

Thank you. Next question comes from Christiana Riley from Deutsche Bank. Please go ahead.

Christiana Riley — Deutsche Bank — Analyst

Hi, good morning, and congrats on a good quarter. I wanted to follow up on retail. We are hearing increased focus on being sharp on pricing and I think I heard you use that word too. Can you just talk about is that our response to inflation and consumers changing the way that they’re shopping, is it something that, you’re also seeing in the competitive environment in your markets, just love to get your thoughts on pricing and rational peers?

Tony Sarsam — Chief Executive Officer

Yeah, we certainly watch what’s going on in the competitive market very closely like we watch what’s going on in our stores very closely. I think just building on my earlier comments a little bit. The — we’re studying — one of the products that sort of mattered, what are those kind of key value items that make a difference in terms of pricing and we’re making sure that as best we can that we manage those to the expectation of the shopper and make sure that they get their hands on those items, so those fundamental building blocks in their shopping basket as the best possible price. And so we haven’t — on some of those items we will take — we’ll take lower increase in inflation in most of them and you’ll see that in the shopping experience at our stores. We think we’re seeing that amongst the competitive set as well. Again, it gets back to getting back to the work that we’re doing that — on the merchant transformation that’s also sort of part of that. We were bringing those kinds of inputs and data points to our suppliers and working with them on ensuring that we have between regular pricing, promoted pricing. We have the best offering overall for shoppers what they expect would need to manage their lives. So — and as I also mentioned that there’s a little bit of a bifurcation between stuff that folks are really, really eager to find that best possible price of things that they’re going to look for the more indulgent experience. It’s a little bit of a balancing act with the overall pricing. Jason?

Jason Monaco — Executive Vice President, Chief Financial Officer

Yeah, Christina [Phonetic] thanks for the for the question. The only other thing I’d add to this is, I wouldn’t want you all to think that this is a new action. So inflation kicked up and we got sharp on pricing. The team has done a terrific job of building out capability and analytics around pricing itself to really move that capability forward. And we talked about last week our insights that drive solutions pricing and pricing capability would be a really good examples on insights that drive solutions. And our teams have been working together to really optimize the shopper experience, leveraging analytics and analytical data to drive the best outcome for shoppers, and frankly to drive performance for our stores. It’s also a capability that we spent time talking about with our wholesale customers as well because it’s something that we think that we can translate from our own retail experience to them as independents.

Christiana Riley — Deutsche Bank — Analyst

It’s great, thanks for the color. And just as a follow-up, I wanted to ask about obviously case volumes that continue to be down. Where do you think we are in the cycle? Are vendors increasing their promotional spend to get their volumes back up, and how do you see that unfold with inflation at least in a lot of food categories? It’s really not abating at least not meaningfully anytime soon.

Jason Monaco — Executive Vice President, Chief Financial Officer

You know, industry-wide, I wouldn’t characterize it as we’ve hit the point where vendors are changing the profile and really promoting. At this point, the way I think about it is inflation is running double-digit. Elasticity is such that we’re seeing low to mid-single digit unit volume declines. And at the same time we still have supply chains that are tight. So until the supply chains loosen up a little bit, there isn’t a whole lot of incentive to make changes with respect to promotional activity from the supplier community. That said, it doesn’t mean that we’re walking away from opportunities to continue to partner with vendors, and many have started to step-up to the table as part of our merchant transformation just to really go after that incremental volume and to really win and be a category winner together with SpartanNash.

Christiana Riley — Deutsche Bank — Analyst

Thank you so much, and best of luck.

Jason Monaco — Executive Vice President, Chief Financial Officer

Thank you.

Operator

Thank you. [Operator Instructions] We have a follow-up question from the line of Chuck Cerankosky from Northcoast Research. Please go ahead.

Chuck Cerankosky — Northcoast Research — Analyst

Thanks, guys. One more on gasoline. Can you just give us some data on how gallons fared during the quarter as well as profit per gallon?

Jason Monaco — Executive Vice President, Chief Financial Officer

Yeah, thanks, Chuck. This is Jason. So unit gallons — gallons were down about 6% in the quarter Year-over-Year. Pricing per gallon was up about 25% as the market moved up significantly. And margins in the quarter were up from versus prior year, and I would say higher — slightly higher than the kind of historical norm as we saw fair amount of volatility in retail fuel pricing in our markets.

Chuck Cerankosky — Northcoast Research — Analyst

Thank you.

Tony Sarsam — Chief Executive Officer

All right, thank you, Chuck.

Operator

Thank you. [Operator Instructions] Ladies and gentlemen this concludes the question-and-answer session. I would like to turn the conference back to Tony Sarsam for any closing remarks.

Tony Sarsam — Chief Executive Officer

Great, thank you and thank you all for your participation in today’s call. We look-forward to speaking with you again when we report on our fourth-quarter results. As we head into Thanksgiving, we want to thank our team of talented associates who work hard every day-to ensure we can enjoy a special meal with our family. So from our family to yours, we’d like to wish you all a wonderful holiday season. Good day.

Operator

[Operator Closing Remarks]