Spartan Stores Growing Through New Smaller Store Concept

| About: SpartanNash Company (SPTN)
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In my last Spartan Stores (NASDAQ:SPTN) article (After Recent Slide, Spartan Stores Shares Look Attractive); I called for the company to surpass the $0.44 analysts were expecting in the first quarter. In that same article, I called for a share price of $22 by the end of 2012 for Spartan shares. After a recent earnings beat and a new smaller store concept, I remain bullish on shares of Spartan stores.

Earnings per share for the fourth quarter were $0.46, beating the analyst's target of $0.44, while also surpassing last year's $0.34. Revenue for the quarter was up 7.6% to $614.8 million. Net income was reported as $10.5 million, versus last year's $7.8 million.

For fiscal 2012, Spartan Stores reported revenue of $2.6 billion, a slight improvement on last year's figure of $2.5 billion. The increase was due in large part of an extra reporting week during the fiscal year (53 vs. 52 weeks). Net income decreased 1.7% to $31.7 million. Earnings per share were $1.39 for Spartan Stores shares.

Valu Land is the new concept store from Spartan Stores. The new small format stores compare closely to Aldi and Save-A-Lot. Spartan has begun utilizing the motto, "groceries for less every day". The company's pilot store is located in Michigan's capitol city of Lansing. There are now four Valu Land stores.

There are over 1300 Save-A-Lot stores across the United States. Aldi has over 1,000 stores across the nation. The value concept of groceries stores continues to grow and offer opportunity. Spartan can utilize its wholly owned value brands and offer them alongside a small number of name brands inside a smaller store to create a great shopping experience.

Valu Line stores are 25,000 square feet on average, nearly half the size of other Spartan retail stores. Spartan has plans to open an additional four to six Valu Line stores during fiscal 2013. Spartan is actively looking to open Valu Line stores outside of Michigan. Spartan believes the Valu Line could help the company expand beyond its existing position in Michigan.

By the end of fiscal 2013, there will be eight to fourteen Valu Line stores. This number could grow to one hundred by 2020. The new concept gives Spartan Stores the ability to expand quickly into new markets and capitalize on lower real estate rents. Continue to watch Spartan's guidance of how many stores they will open.

Spartan Stores also announced a dividend increase to a quarterly amount of $0.08. This amount now gives shares a yield of 1.8%, based on Friday's closing price ($17.40). Spartan also bought back 0.7 million shares during the most recent quarter. Spartan has now bought back half the shares of its original $50 million agreement.

Spartan also continues to pay off its debt early to lower quarterly interest payments. The company reduced net debt by $19.6 million during fiscal 2012. Spartan now saves $1.1 million interest payments each quarter. The company now carries $111.5 million in long term debt. At the end of the quarter, the company had a net cash position of $93.7 million.

Yahoo analysts are predicting earnings per share of $1.42 in 2013 and $1.65 in 2014. I think those numbers could rise with an increase number of Valu Line stores. I recommend taking a look at this regional supermarket chain that is currently the tenth largest in the nation. I maintain my $22 price target for the year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.