Ingles Markets, Inc. — Q3 FY2022 Form 10-Q
Reporting period: Unaudited fiscal quarter and nine months ended June 25, 2022, compared with the periods ended June 26, 2021. Each period comprised 13 weeks for the quarter and 39 weeks year to date. Ingles operated 198 supermarkets across six Southeastern states.
Financial performance
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Net sales | $1,458.2 million | $1,277.5 million | $4,226.8 million | $3,652.5 million |
| Gross profit | $351.9 million | $337.5 million | $1,051.0 million | $962.2 million |
| Gross margin | 24.1% | 26.4% | 24.9% | 26.3% |
| Operating income | $94.6 million | $100.6 million | $280.1 million | $251.3 million |
| Operating margin | 6.5% | 7.9% | 6.6% | 6.9% |
| Net income | $67.8 million | $72.0 million | $202.6 million | $178.0 million |
| Class A diluted EPS | $3.57 | $3.79 | $10.67 | $8.98 |
| Operating cash flow | Not separately provided | Not separately provided | $261.6 million | $213.9 million |
Quarterly sales rose 14.2%, but net income fell 5.9%. For the nine months, sales rose 15.7% and net income increased 13.8%. Excluding gasoline, comparable grocery sales increased 5.7% in Q3 and 8.6% year to date. In Q3, transactions rose 2.3% and average transaction size rose 3.4%; year to date, they increased 1.5% and 7.0%, respectively.
Gasoline sales dollars and gallons sold increased as travel and market fuel prices rose. Q3 retail grocery gross margin excluding gasoline declined 44 basis points year over year; the nine-month measure was up one basis point. Consolidated gross margin was lower in both periods, while operating and administrative expense as a share of sales improved. Higher quarterly wages, repairs, professional fees, and bank charges contributed to expense growth.
Financial position, cash flow and liquidity
- At June 25, 2022, cash and cash equivalents were $126.0 million and short-term investments were $115.2 million, compared with $70.3 million and $5.0 million, respectively, at September 25, 2021.
- Working capital was approximately $459.7 million, based on current assets of $779.1 million and current liabilities of $319.4 million.
- Total debt was approximately $575.2 million: $17.6 million current and $557.6 million long-term. The $150 million revolving credit line, maturing in June 2026, had no borrowings outstanding. The company reported compliance with debt covenants.
- Nine-month operating cash flow was $261.6 million; investing cash outflow was $181.8 million, including $110.2 million of short-term investment purchases and $73.2 million of capital expenditures. Financing cash outflow was $24.1 million, primarily reflecting debt principal payments and dividends.
- Capital expenditures were $73.2 million year to date. Cash dividends paid were $9.2 million. Q3 declared dividends were $0.165 per Class A share and $0.150 per Class B share.
Outlook, commentary and risks
- Management planned fiscal 2022 capital expenditures of approximately $100–$120 million and indicated a longer-term annual range of approximately $100–$160 million. Spending is focused on store modernization, new stores, technology, equipment, and warehouse, transportation, and dairy-plant improvements. Construction commitments were $10.9 million.
- Management said internally generated funds, available financing, and the credit line were expected to meet planned capital and working-capital needs for the foreseeable future, while cautioning that financing may not be available on acceptable terms or when needed. No specific earnings or sales guidance was provided.
- Management cited high inflation, supply-chain and transportation disruption, and a tight labor market. U.S. CPI inflation in the 12 months through June 2022 was 9.1% overall, 12.2% for food at home, and 41.6% for energy. Inflation could raise product, labor, and other operating costs; labor-market constraints had not materially affected operations to date.
- Other disclosed risks include pandemic effects, competition and pricing pressure, fuel-price changes, food distribution disruption, adverse weather affecting food supply, expansion execution, and financing availability. The company said pending ordinary-course legal matters were not expected to materially affect its financial position, results, or cash flows. No asset impairments were recorded in the nine months.
- The company expects to continue regular quarterly dividends, subject to board discretion and debt-agreement restrictions. Management noted that quarterly and year-to-date results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether sales growth persists after separating fuel-price and gasoline-volume effects from underlying grocery trends.
- Whether margin pressure and inflation in food, labor, energy, and other costs affect profitability in subsequent quarters.
- Progress and cost execution on planned store, technology, and infrastructure investment.
- Debt maturities, floating-rate exposure and LIBOR transition arrangements, covenant terms, and continued availability of the undrawn credit line.
- Actual cash generation, investment balances, and capacity to sustain dividends alongside capital spending.