Spartan Stores: Small Grocery Retailer Should Be In Your Portfolio

| About: SpartanNash Company (SPTN)
This article is now exclusive for PRO subscribers.

It always amazes me when a company reports stellar earnings that beat analysts' consensus and Wall Street fails to take notice. That is exactly what happened to small grocery retailer Spartan Stores (NASDAQ:SPTN) on Wednesday. The company beat earnings per share by $0.11 and beat analysts' projected revenue estimates by $6.4 million.

In the fourth quarter, Spartan increased its sales by 4.9% to $592.8 million. This figure is comparative to a 52 week period in the prior year, despite there being an extra week in fiscal 2013. Analysts were expecting revenue of $586.5 million. Spartan reported earnings per share of $0.48, which easily beat the $0.37 estimated by analysts. Despite these strong numbers, shares stayed completely flat at the end of Wednesday's trading session.

Spartan saw comparable store sales growth. Several factors contributed to the increase in sales, including: Easter holiday, strong distribution sales, strong retail sales, and significant loyalty membership. Sales in distribution grew 3.4% to $256.9 million. Retail sales grew 6.1% to $335.9 million.

For the full fiscal year, Spartan beat analysts on earnings per share and fell just shy of revenue targets. Full year earnings were $1.43 vs. consensus of $1.37. Full year net sales were reported as $2.61 billion. This fell just shy of the $2.62 billion forecasted by analysts.

In the fourth quarter, Spartan opened one Valu-Land store. I wrote an article about Valu-Land, the company's new growing opportunity. Similar to an Aldi or Sav-A-Lot, Valu Land offers generic items with minimal overhead and costs. This new store type is helping Spartan grow outside of its strong Michigan presence and could have a significant impact on the company's store count.

Spartan ended the fiscal year with 101 stores and 30 fuel centers. In fiscal 2014, Spartan will re-banner 13 Glen's stores to the Family Fare brand. The company will also complete 12 minor remodels and three major remodels. One to three Valu-Land stores will also be opened during fiscal 2014, setting the company up for possible revenue and earnings beats once again.

Spartan is a company I have recommended on two separate occasions (February 2012, May 2012). Shares still trade relatively flat to those recommendations and continue to offer a great entry point. This small chain has over 100 stores with the chance to continue its growth through acquisitions and its new small store brand. Spartan also has a strong distribution channel, which provides products to grocery stores around the country.

Spartan pays a dividend yield of around 2% and it has grown over the last year. Shares now trade at 12 times projected earnings per share of $1.46 for fiscal 2014. As I projected correctly in 2013, I expect Spartan to beat those numbers. With a small market capitalization of $385 million, Spartan has plenty of growth ahead of it and can be easily moved by its growing store base. The time to get behind this small grocery chain is now.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.