Village Super Market, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended July 30, 2022 (52 weeks). Fiscal 2021 had 53 weeks, so reported annual comparisons include a calendar-week difference. Financial amounts below are in U.S. dollars; amounts are shown in millions unless stated otherwise.
Business context and reporting period
Village operates 34 ShopRite and Fairway supermarkets and four Gourmet Garage specialty markets, primarily in New Jersey and New York. It is a 12.5% owner of Wakefern, its principal supplier and the cooperative behind the banners. The supermarket sector is highly competitive and operates on narrow margins. Village opened a 14,600-square-foot Gourmet Garage in Manhattan in April 2022; its Silver Spring ShopRite had closed in February 2021.
Financial performance and position
| Metric | FY2022 | FY2021 |
|---|---|---|
| Sales | $2,061.1 | $2,030.3 |
| Gross profit / gross margin | $579.7 / 28.12% | $565.0 / 27.83% |
| Operating income / operating margin | $38.9 / 1.88% | $29.2 / 1.43% |
| Net income / net margin | $26.8 / 1.30% | $20.0 / 0.98% |
| Operating cash flow | $79.6 | $52.7 |
| Capital expenditures | $43.3 | $25.2 |
- Sales rose 1.5% as reported; excluding FY2021’s extra week, sales increased 3.5%. Same-store sales increased 4.1%, supported by New York City store sales, higher transaction counts, inflation and SNAP benefit redemptions.
- GAAP net income increased about 34%. Adjusted net income, a company-defined non-GAAP measure, was $35.0 million versus $18.9 million, an 85% increase; FY2022 adjusted results exclude a substantial pension termination and settlement charge.
- Cash and equivalents were $134.8 million, including $110.7 million in overnight deposits at Wakefern. Current working capital was $79.8 million, versus $44.0 million. The increase largely reflected $28.6 million of Wakefern notes receivable classified as current before their August 2022 maturity.
- Borrowings excluding lease obligations totaled $73.7 million, of which $7.5 million was current; lease liabilities totaled $326.8 million. The $75.0 million revolving facility had $67.7 million available, and the company reported compliance with its covenants. Cash less borrowings excluding leases was approximately $61.1 million.
- Cash dividends totaled $13.0 million, or $1.00 per Class A share and $0.65 per Class B share. FY2022 diluted EPS was $1.84 for Class A and $1.34 for Class B.
- In the fourth quarter, sales were $527.5 million and net income was $12.6 million, compared with $536.3 million and $9.5 million, respectively, in FY2021’s fourth quarter.
Material changes versus the prior comparable period
- Gross margin improved 0.29 percentage points, principally from higher departmental margins and a favorable sales mix; higher LIFO charges, reduced Wakefern patronage dividends and rebates, and greater promotional spending partly offset the improvement.
- Reported operating and administrative expense rose to $507.6 million from $498.8 million. Adjusted expense as a percentage of sales declined to 24.05% from 24.76%, reflecting lower labor and advertising costs, partly offset by digital-sales fees and transportation costs.
- Operating cash flow increased to $79.6 million. Investing cash outflow included $43.3 million of capital expenditures and a $5.0 million investment in an Old Bridge, New Jersey real estate partnership.
- Village terminated its nonunion Employees’ Retirement Plan in April 2022. The termination resulted in a $12.3 million pre-tax settlement charge, including $10.9 million of noncash recognition of accumulated losses. The plan was fully settled, with no related plan obligation or assets remaining at year-end.
Outlook, commentary and risks
- Management expects same-store sales growth of 1.0%–3.0% in fiscal 2023, has budgeted $70.0 million of capital expenditures, and expects an effective tax rate of 31.0%–32.0%. The board’s stated intention was to continue quarterly dividends at $0.25 per Class A share and $0.1625 per Class B share.
- Planned investment includes three replacement stores expected to open in FY2024, two major remodels, the purchase of the Vineland shopping center, smaller remodels, electronic shelf labels and further self-checkout expansion. Management expects cash on hand, operating cash flow and the credit facility to cover anticipated needs for the foreseeable future.
- Key disclosed risks include inflation, labor shortages and wage pressure, supply-chain disruption, changing consumer demand and pandemic-related uncertainty; intense competition; dependence on Wakefern for merchandise, services, patronage dividends and deposits; underfunded multi-employer pension plans and possible contribution increases; food-safety, insurance and cybersecurity exposures; and potential store, goodwill or trade-name impairment. Manhattan Fairway performance had been affected by reduced residential, commuter and tourist traffic.
- Wakefern-related concentration is significant: Village purchases substantially all merchandise from Wakefern and held $110.7 million in Wakefern demand deposits and $57.8 million in Wakefern notes at year-end. Notes are subject to Wakefern prepayment rights. After year-end, Village invested $28.9 million and $30.0 million in additional Wakefern notes.
- After year-end, Village entered into a $10.0 million unsecured term loan, with a swap fixing its stated effective rate at 4.30%; a Wakefern subsidy reduces the company’s stated net effective rate to 2.30% for qualifying financing.
- Approximately 88% of employees are covered by collective bargaining agreements. The company reported no union contracts expiring within one year. Management considered pending ordinary-course litigation not likely to have a material adverse effect.
Important facts for investors to verify
- How much FY2022 earnings improvement is repeatable after adjusting for the pension settlement and other non-GAAP items; review the company’s reconciliation and adjustment definitions.
- Whether the 1.0%–3.0% FY2023 same-store sales outlook and $70.0 million capital budget are being achieved, including construction and replacement-store timing.
- Wakefern’s financial condition and the concentration, liquidity, rates and terms of Village’s deposits, notes, patronage dividends and supply relationship.
- Debt and lease obligations, the effect of the subsequent $10.0 million loan, and headroom under credit-facility covenants as interest rates and investment spending change.
- Potential increases in multi-employer pension contributions, labor costs, and the risk of impairment at underperforming stores or acquired brands.
- Governance and voting rights: Class B shares carry 10 votes each and control more than 50% of total voting power. The auditor issued an unqualified opinion and reported effective internal control over financial reporting.