SPIRIT UPDATE January 2018
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SPIRIT UPDATE January 2018
Company Timeline – Providing Context
FY2017
The Company embarks on
operating initiatives aiming to
January 2013
drive margin expansion and to
Shopko completes conversion lift overall performance November 2017
of 163 Pamida stores to
Russ Steinhorst named
become one of the largest U.S. February 2017 permanent CEO; initiated
retailers focused on serving
Company hires new SVP Customer search for CFO
smaller, rural communities
February 2015 Officer, SVP Retail Health, and SVP
Strategy/Analytics
Departure of Chief
March 2009 Merchandising Officer December 2017
W. Paul Jones July 2017 Adds 2 independent
succeeds Michael R. July 2014 Board members
FY2015 Russ Steinhorst, CFO, named
MacDonald as Shopko
EVP of Retail Health Interim CEO and member of
Chairman and CEO
departs after 37 years Shopko opened Board of Directors
with the Company 39 net new
Hometown stores Engaged AlixPartners for Present
operational improvement
initiatives
FY2016 December 2016
November 2013 August 2017
The Company Shopko opened 21 Peter McMahon
February 2007 names Peter Ron Ota named January 2018
net new Hometown steps down as
Pamida separated McMahon as CEO stores Shopko CEO Chief Merchandising Announces $35
as standalone Officer million Term Loan
business February 2012 from Spirit Realty
Shopko announces merger with
October 2014
Pamida; almost all stores are
rebranded Shopko Hometown Corporate reorganization resulting
Stores in the elimination of approximately
December 2005 120 positions
Sun Capital Partners acquires
Shopko
1
Recent Challenges & Path Forward
Recent Challenges Path Forward
Shopko’s FY2016 performance deteriorated due Shopko has a three-pronged approach to deliver a stable,
to three principle factors growing go-forward entity
Leadership voids created operational Corporate Reorganization /
1 challenges in the Main Store and Pharmacy 1 Hiring & Operational
businesses Improvement Initiatives
Aggressive new store growth into new
2 territories in FY2015 and FY2016 pressured 2 Store Rationalization Plan
organizational capabilities
Recent performance put pressure on liquidity
Compelling Growth
3 making it difficult to evolve with the market and 3 Opportunities
capitalize on growth opportunities
Since Implementing The Go-Forward Plan, The Company Has Posted Improved
Performance, Proving Its Viability & Long-Term Earnings Potential
2Operational Improvement Initiatives
Overview
Within the last 12 months, the Company has reorganized and strengthened its leadership team with a new Chief Executive Officer, Chief
Merchandising Officer, Chief Customer Officer, SVP of Retail Health, adding an SVP of Strategic Analysis, and eliminating three senior level positions.
Board of Directors was expanded to include two new independent Directors. Under this new team, Shopko is executing on multiple operational
initiatives, as detailed below:
Initiative Summary Status
Main Store In-store operating efficiency review that led to implementing standard operating procedures at all stores Completed
A Process beginning in Q4 FY2016
Improvement Standards applied to functional areas such as; front-end, freight, pricing, sales floor and planograms
Realigned field leadership by geography rather than format, reducing headcount
Main Store
B Pricing Strategic approach to initial, promotional and clearance pricing that has resulted in expanded margins In Process
Strategy Expanded pricing tiers, supported by a one time investment in a pricing software solution to optimize the
Company’s everyday pricing strategy
Focus on ROI generating Promotion and Marketing activities
Inventory Implemented guidelines and strategies that have improved in season sell-thru In Process
C Management Optimized inventory levels have reduced the levels of clearance merchandise and improved gross margin
Disciplined management of seasonal inventory buys and end of season markdown cadence
Shrink Rate Reduce general merchandise shrink through improved store processes In Process
D Improvement
Pharmacy Refined pharmacy staffing levels to better align with their individual demand profiles Completed
Labor Model Implemented a tracking system that enables the Company to capture benefits of other labor efficiency
E
Improvement initiatives
Pharmacy
WI Pharmacy Refine operations within pharmacies by: (i) standardizing and optimizing its operating software, (ii) analyzing In Process
F Operations location variations, and (iii) reallocating labor across locations to maximize productivity
Reset
Distributor Amendment with core pharmaceutical distributor that revised pricing through December 2021 Completed
G Contract Branded purchase discounts and an improvement in pricing for the preferred generic program
Revision
Expanded Additional provider program to generate incremental pharmacy income through new covered entities Completed
H 340B
Program
PBM Negotiate PBM contracting / agreements to improve profit margins In Process
I
Contracts & Developing a plan for SKU rationalization and managing the sale of prescriptions to improve margins
Profitability
3Compelling Growth Opportunities
Overview
Currently private brand products account for ~15% of sales vs.~25% - 50% for competitors
Private Brand
Opportunity Implemented a plan to increase private brand volume and penetration through FY2020 to
30% of merchandise sales
Opportunity to improve in-store experience with updated navigational and perimeter signing
Focused Brand signing can improve customer understanding of the breadth of offering
available
Improved Store
Experience The Company is evaluating other initiatives that will enhance the customer experience in
our stores
By optimizing the product offerings, based upon regional preferences, the Company is able
to drive higher sales at better margins
5.7mm Customers are enrolled in Shopko loyalty programs, with the ability to increase
lifetime value by optimizing the use of existing data
Enhanced More targeted and customer-specific marketing initiatives to reactivate inactive customers,
Marketing Effort but also drive incremental spending of active customers
Adjusting the media mix to drive new customer engagement, developing customer-specific
coupons, and creating Pharmacy and Optical specific efforts
Optical business is generating consistent growth and superior margins, and can be further
scaled across the store base
Optical Business Optical Business
Expansion Leverage excess capacity at the Company’s optical lab through new optical centers Expansion
(Hometown or free-standing locations), the addition of second exam lanes at existing, high-
volume optical centers, or as a third party supplier.
4Compelling Growth Opportunities
Overview (Cont.)
Focus on renegotiating rent cost in line with current market levels
Real Estate
Optimization Re-evaluating the square footage requirements of its Big Box format in order to improve
productivity and reduce rental expense
Refined Large whitespace opportunity of ~150 - 200 locations within the current footprint.
Hometown Return to FY2013 / FY2014 site identification process to open up to five new Hometown
Concept Focus stores per year beginning late FY2019
Implement cost savings identified by AlixPartners to improve FY2018 EBITDA
SG&A Reduction
Opportunity Significant SG&A saving opportunities that could be realized across three primary focus
areas: (i) corporate headcount, (ii) indirect spending, and (iii) advertising strategy
Private Label Improved liquidity position provides opportunity to renegotiate merchandise costs
and
National Brand Use data analytics to optimize the placement of product offerings and improve product
Purchasing profitability
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