Village Super Market, Inc. — Form 10-Q Summary
Reporting period: 13 and 39 weeks ended April 27, 2019; unaudited. Village operates 30 ShopRite supermarkets and is a major member of Wakefern, its principal supplier and a significant related party.
Financial performance
| Metric | 13 weeks ended Apr. 27, 2019 | Prior-year quarter | 39 weeks ended Apr. 27, 2019 | Prior-year period |
|---|---|---|---|---|
| Sales | $395.5 million | $395.4 million | $1,225.1 million | $1,201.0 million |
| Gross profit / margin | $110.6 million / 27.97% | $109.8 million / 27.77% | $340.5 million / 27.79% | $328.1 million / 27.32% |
| Operating income / margin | $6.7 million / 1.70% | $9.0 million / 2.27% | $26.3 million / 2.16% | $24.2 million / 2.03% |
| Net income / margin | $5.0 million / 1.26% | $6.5 million / 1.65% | $18.8 million / 1.55% | $19.1 million / 1.59% |
| Class A diluted EPS | $0.35 | $0.45 | $1.31 | $1.32 |
Quarterly sales were essentially flat; management attributed the result to the Bronx store opening offset by a 2.4% same-store sales decline. Operating income fell about 26% and net income about 24% year over year. For the 39-week period, sales rose 2.0%, operating income increased about 9%, and reported net income declined about 1%.
Gross margin improved in both comparisons, primarily from higher Wakefern patronage dividends and rebates, stronger departmental margins and favorable product mix; lower promotional spending also benefited the year-to-date period. Higher payroll and fringe-benefit costs, including pension settlement charges, contributed to increased operating expenses. Interest income rose with larger balances and higher rates on Wakefern deposits and notes.
Cash flow, liquidity and obligations
- Operating cash flow was $39.8 million for 39 weeks, versus $31.7 million a year earlier. Investing used $21.0 million, including $18.8 million of capital expenditures; financing used $10.7 million, including $9.7 million of dividends.
- Cash and cash equivalents were $104.1 million at April 27, 2019. Working capital was $68.0 million and the current ratio was 1.67, compared with $89.2 million and 1.88 at fiscal year-end. The working-capital decline principally reflected reinvestment of a matured Wakefern note as a long-term receivable.
- Reported long-term debt was $48.0 million; current capital and financing lease obligations were $0.9 million. No borrowings were outstanding under the $25 million revolving credit facility, which expires December 2020.
- Cash includes $81.8 million of demand deposits at Wakefern; the company also held $49.4 million of Wakefern notes receivable. These related-party balances are material to liquidity and interest income.
Changes, outlook and risks
- Management expects fiscal 2019 same-store sales to range from a 1.0% decrease to flat; it cited competitor openings, the timing of SNAP benefits and fewer winter weather events among factors affecting comparable sales.
- Fiscal 2019 capital spending was revised down to approximately $30 million, mainly because the Stroudsburg replacement-store schedule shifted; the store was expected to open in fall 2019. Planned spending also includes remodels, self-checkout and technology and facility upgrades.
- The Board’s current intention was to continue quarterly dividends at $0.25 per Class A share and $0.1625 per Class B share. Management believed cash, operating cash flow and other liquidity sources would cover anticipated needs.
- Management expected a 30%–31% fiscal 2019 effective tax rate and approximately $1.3 million of net periodic pension costs. It also anticipated pressure from operational-proficiency spending and medical and other fringe-benefit costs.
- Unusual items affect comparisons: prior-year results included Tax Act-related noncash deferred-tax benefits of $574,000 for the quarter and $3.3 million year to date. Fiscal 2019 year-to-date results included a $290,000 after-tax Superstorm Sandy insurance gain; the company received $415,000 in November 2018 and had received $4.0 million cumulatively. A $431,000 pension settlement loss was recognized in fiscal 2019 year to date. Excluding specified tax and insurance items, management said year-to-date net income increased 17%.
- Key risks include intense competition and narrow margins; concentration in New Jersey; dependence on Wakefern for merchandise, services, deposits and patronage benefits; union, healthcare and pension costs; food-safety, cyber and information-system risks; and possible asset impairment. NMTC financing for the Bronx store carries a seven-year tax-credit recapture period; management did not anticipate recapture. Management viewed other litigation as not expected to have a material adverse effect.
- The company planned to adopt the new lease standard in fiscal 2020 and expected a material increase in reported lease liabilities and right-of-use assets. Disclosure controls were reported effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether same-store sales stabilize and the stated fiscal 2019 range is achieved, especially given competitor openings and the company’s geographic concentration.
- Whether gross-margin gains and Wakefern patronage benefits persist while payroll, benefits and other operating costs rise.
- The credit and liquidity exposure represented by Wakefern demand deposits and notes receivable, and the cooperative’s continued financial and operating health.
- Execution, timing and final cost of the Stroudsburg replacement store and the revised capital-spending plan.
- Future pension and multi-employer plan contributions, NMTC compliance through the recapture period, and the balance-sheet impact of lease-standard adoption.