Village Super Market, Inc. — Q3 FY2024 Form 10-Q
Reporting period: 13 and 39 weeks ended April 27, 2024; comparisons are with the periods ended April 29, 2023. The company operates 34 supermarkets and three Gourmet Garage markets. Amounts below are in millions unless otherwise noted.
Financial performance and liquidity
| Metric | Q3 FY2024 | Q3 FY2023 | 39 weeks FY2024 | 39 weeks FY2023 |
|---|---|---|---|---|
| Sales | $546.4 | $529.3 | $1,658.3 | $1,612.8 |
| Gross profit | $155.9 | $151.2 | $472.3 | $455.4 |
| Operating income | $10.2 | $14.0 | $42.8 | $45.3 |
| Net income | $9.0 | $11.0 | $35.0 | $34.4 |
| Operating cash flow | Not separately provided | Not separately provided | $58.0 | $68.2 |
- Q3 sales increased 3.2%; same-store sales rose 2.3%. Q3 operating margin was 1.87% versus 2.64%, and net margin was 1.64% versus 2.08%.
- Q3 gross margin was 28.54% versus 28.57%. Operating and administrative expense rose to 25.19% of sales from 24.33%, pressuring operating income. Q3 net income decreased about 19% year over year.
- For the 39 weeks, sales rose 2.8%, same-store sales increased 2.2%, and net income rose 1.8%. Operating margin declined to 2.58% from 2.81%; gross margin improved to 28.48% from 28.23%.
- Adjusted net income, a non-GAAP measure, was $9.6 million for Q3, down 6%, and $35.7 million for the 39 weeks, up 6%. Adjustments include $0.9 million of Old Bridge store pre-opening costs in FY2024 and a $1.2 million litigation settlement gain in the prior-year periods.
- 39-week operating cash flow was $58.0 million, down from $68.2 million, primarily reflecting working-capital movements and tax-payment timing. Capital expenditures were $54.1 million; dividends were $10.0 million, debt principal payments $8.3 million, and share repurchases $1.6 million. Cash declined to $113.9 million from $140.9 million at fiscal year-end.
- At April 27, 2024, working capital was $16.3 million and the current ratio was 1.09, compared with $67.7 million and 1.38 at July 29, 2023. Management attributes much of the decrease to reinvesting a matured $33.3 million Wakefern note into a long-term note.
- Debt excluding lease obligations totaled $74.6 million, including $9.4 million current and $65.3 million long-term. Separate lease obligations were $276.2 million operating and $20.6 million finance. No borrowings were reported on the $75 million revolving credit line; $67.7 million remained available, and the company was in compliance with facility covenants.
- Cash and cash equivalents include $95.1 million of overnight demand deposits at Wakefern. The company also held $100.7 million of long-term notes receivable from Wakefern, its principal supplier and a related party.
Changes, outlook and risks
- Sales growth reflected inflation, digital sales, pharmacy growth, recently remodeled stores, and the March 2024 opening of an 83,000-square-foot Old Bridge replacement store. A Gourmet Garage location closed in November 2023; management said the closure and its operating impact were not material.
- For the 39 weeks, higher labor and fringe-benefit costs, digital-sales fees, security, software licensing, and repairs increased adjusted operating and administrative expense to 24.33% of sales from 23.91%. Management cited minimum-wage and demand-driven pay increases and higher union benefit costs.
- Interest income increased due to higher rates and greater Wakefern deposits and notes; interest expense decreased with lower average debt. The company’s floating-rate debt is substantially hedged with interest-rate swaps.
- FY2024 outlook: same-store sales growth of 2.0%–2.5%; capital expenditures budgeted at $70 million; effective tax rate of 31%–32%; and intended quarterly dividends at the then-current rates of $0.25 per Class A share and $0.1625 per Class B share. Management expects cash, operating cash flow, and credit availability to meet foreseeable needs.
- Planned investment includes two replacement stores expected to open in FY2025, remodels, real estate, and technology and facility upgrades. The Old Bridge development partnership is expected to require the company to fund an estimated $15–$20 million over two to three years; $15.6 million had been invested by April 27, 2024.
- Key disclosed risks include intense competition and narrow margins; dependence on Wakefern for merchandise, services, and patronage benefits; regional economic exposure; collective bargaining agreements covering approximately 92% of employees; multi-employer pension-plan exposure; food safety, self-insurance, and asset impairment risks; and cybersecurity or information-system disruption. Litigation is described as ordinary-course, with management not expecting a material adverse effect.
Important facts for investors to verify
- Whether sales growth and the 2.0%–2.5% same-store sales outlook persist, and how inflation, promotions, and product mix affect volume and margins.
- Whether labor, benefit, security, digital, and technology costs continue to outpace sales growth and constrain operating profitability.
- Execution, remaining cost, and opening schedules for Old Bridge and the two replacement stores planned for FY2025, against the $70 million FY2024 capital budget.
- Liquidity and related-party exposure to Wakefern, including the $95.1 million demand deposits and $100.7 million long-term notes, their rates, maturities, and prepayment provisions.
- Credit-facility renewal before its May 6, 2025 expiration, covenant compliance, debt service, and the company’s substantial lease obligations.
- Potential changes in pension contributions, labor agreements, food-safety or cyber incidents, litigation, and other contingencies; the filing provides no quantified estimate of potential losses for these risks.