Investor Presentation
FORWARD LOOKING STATEMENTS This presentation contains forward-looking statements. These forward-looking statements are subject to a number of factors that could cause actual results to differ materially. Forward looking statements, which are based on management s beliefs and assumptions and describe the company s future plans, strategies and expectations, are generally identifiable by the use of terms such as continued, initiative, planned, poised, positioned, potential, strategy, will, or similar expressions. The company s ability to successfully implement and realize the expected benefits of strategic initiatives and investments is not assumed. Additional information about the factors that may adversely affect these forward-looking statements is contained in Spartan Stores reports and filings with the Securities and Exchange Commission. Other risk factors exist and new risk factors may emerge at any time. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictions of future results. Spartan Stores undertakes no obligation to update or revise any forwardlooking statements to reflect developments or information obtained after the date of this presentation. 2
WHO WE ARE 3
COMPANY HIGHLIGHTS Consumer-centric Retailer and Distributor # 1 regional supermarket chain and distributor in Michigan # 1 or # 2 market share in core markets Experienced management team that averages 30 years of retail/distribution experience Strong Financial Position Leaves Company Poised for Growth FY 2010 revenues of $2.6 billion and FY 2010 Adjusted EBITDA of $103 million second highest amount in company history (1) $130 million available under revolving credit facility Low leverage with a net debt to Adjusted EBITDA ratio of 1.5x Return of Capital to Shareholders Free cash flow yield of 17.1% Dividend yield of 1.2% (as of most recent dividend record date) Company is Well Positioned to Take Advantage of Improving Economy (1) Please see Adjusted EBITDA note on page 27 4
DISTRIBUTION SEGMENT FY 2010 Segment Revenues Positioned as a Value Added Supplier Full service distributor of choice Dominant Position in Michigan with a Growing Presence in Northern Indiana Only full service distributor with facility in MI Grand Rapids, MI Facility 1.4 million sq ft Supplies 370 independent stores 5
RETAIL SEGMENT FY 2010 Segment Revenues Distributio n 43% Retail 57% Differentiated Alternative to Supercenters and Other Low Cost Competitors Go to market strategy: - Convenient well maintained locations - Emphasis on fresh and local products - Highly promotional - Easy to shop and relevant to current trends Fuel centers on pad in 25 locations Pharmacies in 67 locations Wellness focus with nutritional labeling 97 Retail Supermarkets - Average size of 42,000 sq ft - Average sales of $14MM per year 80% Increase in Supermarket Count Since End of Fiscal 2004 6
FAMILY FARE/GLEN S EXPERIENCE Focus on Value 7
FAMILY FARE/GLEN S EXPERIENCE In-store Pharmacies Designed for Convenience Promotional End-caps Full Assortment of Perishables 8
D&W FRESH MARKET EXPERIENCE Extensive Produce Selection 9
D&W FRESH MARKET EXPERIENCE Starbucks Coffee Shops Wide Assortment of Fresh Prepared Foods Premier Wine Selection Destination for Seafood 10
CONSOLIDATED MARKET SHARE Core Markets (1) : Northwestern, MI (Pop. 616,000) Company 05/10 1 Spartan Stores 38.2% 2 Wal-Mart Supercenter 23.0% 3 Meijer 13.0% 4 Nash Finch 9.8% 5 Save A Lot 6.0% 6 GFS 4.2% 7 Sam s Club 2.1% Southwestern, MI (Pop. 2,012,000) Company 05/10 1 Meijer 32.3% 2 Spartan Stores 29.5% 3 Wal-Mart Supercenter 16.9% 4 Sam s Club 4.7% 5 Costco 3.6% 6 Save A Lot 3.5% 7 GFS 2.6% Secondary Markets (1) : Flint-Saginaw-Bay City, MI (Pop. 1,195,000) Company 05/10 1 Wal-Mart Supercenter 22.6% 2 Meijer 21.7% 3 Kroger 19.4% 4 Spartan Stores 12.0% 5 Sam s Club 5.9% 6 Nash Finch 5.3% 7 Save A Lot 4.0% (1) Includes Spartan s corporate owned as well as Spartan supplied stores Source: Metro Market Studies Southeastern, MI (Pop. 5,012,100) Company 05/10 1 Kroger 27.1% 2 Meijer 22.0% 3 Spartan Stores 11.0% 4 Wal-Mart Supercenter 10.0% 5 Costco 8.2% 6 Sam s Club 4.5% 7 GFS 2.7% Lansing, MI (Pop. 669,000) Company 05/10 1 Meijer 32.1% 2 Kroger 15.2% 3 Wal-Mart Supercenter 13.9% 4 Spartan Stores 7.0% 5 Sam s Club 6.4% 6 Nash Finch 6.1% 6 Supervalu 6.1% 11
STRATEGIC INITIATIVES 12
RETAIL STRATEGIC INITIATIVES Acquisition of Retail Stores - March 2006: D&W Fresh Market = Increased Spartan s annual sales by $200 million - June 2007: Felpausch = Increased consolidated sales by $100 million on an annualized basis - December 2008: VG s = Increased consolidated sales by approximately $140 million on an annualized basis - Further roll up opportunities Cost Reduction (excluding restructuring costs, reduced SG&A on rate basis in Q2) - Expansion of not for resale procurement team - Real estate strategy 13
RETAIL STRATEGIC INITIATIVES: CONSUMER CENTRIC Refinement of Loyalty Card Program at Glen s Banner and Rollout to Other Banners Increased targeting and more impactful promotions Roll out to VG s banner is underway 14
RETAIL STRATEGIC INITIATIVES: CONSUMER CENTRIC Evolve Offer to Meet Shifting Consumer Expectations Focusing on Health, Cooking at Home Implemented in-store nutritional labeling program Launched Meals Made Easy Shift to Value Winning with a highly promotional offer Strengthening private label with a focus on fresh departments Increasing convenience with pharmacy and fuel services on-site Offering aggressive generic prescription program Leveraging fuel rewards 15
RETAIL STRATEGIC INITIATIVES: CONSUMER CENTRIC Pharmacy $4/$10 Generics Program - Pharmacy customers are most loyal - FY 2010 Rx count growth of 3.6% over prior year - FY 2011 Qtr 2 YTD Rx count growth of 2.3% over FY 2010 Qtr 2 YTD VG s Rolling Out Free Antibiotic Program 16 16
RETAIL STRATEGIC INITIATIVES: CONSUMER CENTRIC Quick Stop Fuel and Convenience Centers - 25 Quick Stop Fuel Centers today - 13 locations in Greater Grand Rapids: substantial market coverage Technology Investment Promotional programs - Everyday discount of $.05 per gallon - Fuel discounts tied to in-store purchases Differentiated way to add value 17
RETAIL STRATEGIC INITIATIVES Capital Plan: - Investment in the Business 16 major remodels completed in 2008-2010 3 store relocations completed in 2008-2010 14 new fuel centers completed in 2008-2010 - FY 2011 planned activity to include 5 major remodels 2 new/relocated supermarkets 1-2 new fuel centers - Three year planned activity to include Targeting 4-6 additional new/replacement stores Targeting 4-6 new fuel centers 18
DISTRIBUTION STRATEGIC INITIATIVES Supply chain optimization - Consolidation of Plymouth dry grocery facility into Grand Rapids Actively seeking to increase wholesale accounts in contiguous areas Potential acquisition of distribution business Continued focus on increasing private label penetration and overall purchase concentration 19
DISTRIBUTION STRATEGIC INITIATIVES Distribution Purchase Concentration 100% Customer Retail Sales 50 Retail Margin, DSD and Other Purchases 45% Opportunity 15% Spartan Penetration 40% Potential Volume > $100 million Fresh Foods Initiatives Private Label Offerings Natural/Organic/Specialty Foods Category Management Retail Margin, DSD and Other Purchases 45% Spartan Penetration 55% 0 Current Value Added Retail Services Target 20
FINANCIAL HIGHLIGHTS 21
CONSOLIDATED NET SALES (In Millions) 8% CAGR, despite a 47% increase in supercenters and doubling of the unemployment rate $717R $1,156D $968R $1,238D $1,193R $1,284D $1,328R $1,249D $1,461R $1,091D $703R $503D $685R $494D (1) FY08 and FY09 sales do not include a full year of Felpausch or VG s respectively. (2) Pharm operations have been eliminated from all periods presented. 22
COMPARABLE STORE SALES Supermarkets (without Fuel Centers) *Q4 FY07 excluding impact of 53 rd week. Q4 FY08, Q4 FY09, Q1 FY09 and Q1 FY10 adjusted for Easter shift. Peer Avg. includes latest quarters of comp store sales or ID sales as released by A&P, Kroger, Nash Finch, Safeway, Supervalu and Winn Dixie. 23
ADJUSTED EBITDA AND CAPITAL EXPENDITURES (In Millions) 16% CAGR Note: Adjusted EBITDA is a non-gaap financial measure, please see Adjusted EBITDA note on page 27. (1) Full Year FY07 Adjusted EBITDA includes a $3.1MM EBITDA benefit from the 53 rd week. (2) Pharm operations have been eliminated from all periods presented. 24
STRONG METRICS Relative to Peers SPTN GAP KR NAFC SWY SVU WINN (Spartan) Peer Avg (A&P) (Kroger) (Nash Finch) (Safeway) (Supervalu) (Winn Dixie) Retail Sales as a % of Total Sales 59% 81% 100% 100% 10% 100% 77% 100% Debt/Capital 34% 104% 285% 55% 47% 49% 83% negative Total Debt to Adjusted EBITDA (1), (2) 1.5x 3.4x 8.4x 1.5x 2.5x 1.7x 3.0x negative ROIC (3) 6.3% 5.8% negative 9.5% 7.2% 6.8% 5.6% 0.0% Free Cash Flow Yield (4) 17.1% 16.9% negative 7.7% 7.3% 17.6% 35.1% negative Notes: Reflects SPTN as of second Qtr ended 9/11/10, GAP as of second Qtr ended 9/11/10, KR as of third Qtr ended 11/6/10, NAFC as of third Qtr ended 10/19/10, SWY as of third Qtr ended 9/11/10, SVU as of second Qtr ended 9/11/10, and WINN as of fourth Qtr ended 9/22/10. (1) Adjusted EBITDA reflects rolling 12 months (13 periods) of Adjusted EBITDA. (2) Please see Adjusted EBITDA note on page 27. (3) ROIC excludes the asset impairment charge of A&P, Kroger, Nash Finch, Safeway, Spartan, Supervalu and Winn Dixie. (4) Free Cash Flow Yield represents TTM Net Cash Provided by Operating Activities Less Purchases of Property and Equipment divided by Shares Outstanding divided by share price as of most recent publicly reported period end date. 25
SUMMARY Data Suggests Michigan s Economy is Stabilizing Financial strength and strategic positioning will enable Spartan to pursue strategic growth and take advantage of economic recovery when it occurs Retail: Pursue acquisition of retail stores in contiguous markets Open new, fill-in and replacement supermarkets and add new fuel centers Make major upgrades to select existing stores Continue to tailor offerings and promotional programs to changing consumer preferences Distribution: Optimize supply chain Seek to increase our wholesale accounts in contiguous areas Evaluate acquisition of distribution business in contiguous areas Increase sales penetration 26
ADJUSTED EBITDA NOTE (000) Fiscal Year Ending Year-to-Date (24 weeks) 3/25/06 3/31/07 3/29/08 3/28/09 3/27/10 9/12/09 9/11/10 Consolidated: Net earnings 18,172 25,160 32,646 36,871 25,558 17,293 17,226 Plus: Discontinued operations 477 (992) (1,795) (1,838) 375 48 194 Income taxes 9,650 13,013 17,216 23,914 16,475 11,452 11,137 Non-operating expense 5,821 11,485 13,555 13,797 16,256 7,337 6,879 Operating earnings 34,120 48,666 61,622 72,744 58,664 36,130 35,436 Plus: Depreciation and amortization 18,755 20,446 23,781 28,133 34,640 16,150 15,906 LIFO expense 758 311 2,578 2,531 (176) (81) (3,208) Provision for asset impairments and exit costs 985 4,464 0 0 6,154 601 2,765 Other non-cash charges 2,187 3,278 3,993 4,495 3,996 2,134 2,123 EBITDA 56,805 77,165 91,974 107,903 103,278 54,934 53,022 Note: Consolidated Adjusted EBITDA is a non-gaap financial measure that our credit facility defines as net earnings from continuing operations plus depreciation and amortization, and other non-cash charges including imputed interest, deferred (stock) compensation, LIFO expense and costs associated with the closing of retail store locations, plus interest expense, the provision for income taxes and Michigan Single Business Tax to the extent deducted in the computation of net earnings. Adjusted EBITDA is not a measure of performance under accounting principles generally accepted in the United States of America, and should not be considered as a substitute for net earnings, cash flows from continuing operating activities and other income or cash flow statement data. The Adjusted EBITDA information has been included as one measure of the Company s operating performance and historical ability to service debt. The Company believes investors find the information useful because it reflects the resources available for strategic opportunities including, among others, to invest in the business, make strategic acquisitions and to service debt. Adjusted EBITDA as defined by the Company may not be comparable to similarly titled measures reported by other companies. (1) 53 weeks ended March 31, 2007 Adjusted EBITDA includes a $3.1MM EBITDA benefit from the 53 rd wk of Fiscal 2007. (2) Pharm results have been removed from all periods presented. 27