Village Super Market, Inc. — FY2023 Form 10-K
Business and period: The filing covers the 52-week fiscal year ended July 29, 2023; comparative FY2022 also contained 52 weeks. Village operated 34 ShopRite and Fairway supermarkets and four Gourmet Garage stores across New Jersey, New York, Maryland and Pennsylvania. It is Wakefern’s second-largest member and depends on the cooperative for substantially all merchandise, distribution and many support services. Dollar figures below are in millions unless stated otherwise.
Financial performance and position
| Metric | FY2023 | FY2022 |
|---|---|---|
| Sales | $2,166.7 | $2,061.1 |
| Same-store sales growth | 3.5% | 4.1% |
| Gross profit / margin | $616.5 / 28.45% | $579.7 / 28.12% |
| Operating income / margin | $65.5 / 3.01% | $38.9 / 1.88% |
| Net income / margin | $49.7 / 2.29% | $26.8 / 1.30% |
| Operating cash flow | $104.5 | $79.6 |
- Sales rose 5.1%, driven by 3.5% same-store growth, primarily attributed to retail price inflation, as well as the West Village Gourmet Garage and the remodeled Pelham ShopRite.
- Adjusted net income, a company-defined non-GAAP measure, was $49.2 million versus $35.0 million, up approximately 40%. FY2023 GAAP net income included a $1.2 million litigation settlement gain and a $0.4 million loss on non-operating investments; FY2022 adjusted results excluded pension termination and settlement charges. Consider these adjustments when comparing performance.
- Gross margin improved with stronger department margins, higher Wakefern patronage dividends and rebates, lower LIFO charges and lower promotional spending; higher warehouse assessment charges and inventory shrink partly offset the gains. Adjusted operating and administrative expense was 23.89% of sales versus 24.05%.
- Interest income increased to $11.4 million from $4.0 million, primarily due to higher rates and larger investments with Wakefern. Interest expense was $4.2 million versus $3.9 million. Effective tax rate was 31.6%.
- Cash and cash equivalents were $140.9 million; working capital was $67.7 million and the current ratio was 1.38, down from 1.50. Cash includes $122.0 million in Wakefern demand deposits. Village also held $94.2 million in Wakefern notes receivable.
- Operating cash flow funded $46.4 million in capital expenditures, $13.2 million in dividends and $10.4 million in principal repayments. Year-end equity was $410.2 million.
- Bank and New Markets Tax Credit debt, excluding lease obligations, was $81.8 million, including $9.4 million current; present-value operating and finance lease liabilities totaled $308.4 million. A $75 million revolving line had $67.7 million available, and the company reported compliance with covenants. Cash-flow hedges fixed rates on five loans; $76.9 million was the swaps’ year-end notional amount.
- FY2023 fourth-quarter sales were $553.8 million and net income was $15.3 million, compared with $527.5 million and $12.6 million in FY2022’s fourth quarter.
Changes, outlook and key considerations
- Management expects FY2024 same-store sales growth of 1%–3%, capital expenditures of approximately $85 million, and an effective tax rate of 31%–32%. The Board’s current intention is quarterly dividends of $0.25 per Class A share and $0.1625 per Class B share. These are expectations, not guarantees.
- Planned investment includes the Old Bridge replacement store, expected to open in FY2024, and two replacement stores planned for FY2025. Village expects cash on hand, operating cash flow and its credit facility to fund anticipated needs.
- Village invested $10.9 million in the Old Bridge real-estate partnership by year-end and expects to fund an estimated $15–$20 million share of project costs over two to three years. The partnership includes a replacement store with a $4.1 million operating lease obligation.
- Key exposures include intense competition and narrow grocery margins; dependence on Wakefern for products, patronage dividends, support services and substantial deposits and notes; inflation, wages and interest rates; food safety; information-system and cybersecurity disruption; self-insured claims; and potential impairment of store assets or goodwill.
- Approximately 92% of employees are covered by collective bargaining agreements; 18% are represented by unions with contracts expired or expiring within a year. Certain multi-employer pension plans are underfunded, potentially increasing contributions or creating withdrawal-liability exposure. Management believes routine litigation will not materially affect financial position, results or liquidity.
- Village reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls. The auditor identified assessment of long-lived-asset impairment indicators as a critical audit matter, not a separate qualification of its opinion.
Important facts for investors to verify
- Whether sales growth and margin improvement persist as inflation effects and FY2024 same-store comparisons evolve.
- The liquidity and concentration implications of Wakefern exposures: $122.0 million in demand deposits, $94.2 million in notes receivable and patronage-dividend estimates; Wakefern may prepay notes, and some repayment circumstances could reduce earned interest.
- Execution, total cost and timing of the $85 million FY2024 capital program and Old Bridge and other replacement-store projects.
- Union contract outcomes, labor-cost trends and exposure to underfunded multi-employer pension plans and self-insured claims.
- Lease commitments: $308.4 million present-value lease liabilities and approximately $31.0 million of future payments for executed leases not yet commenced.
- Class B shares carry 10 votes per share and control more than half of total voting power; confirm the implications for governance and shareholder rights.