Village Super Market, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended July 25, 2015 (52 weeks). The company operates 29 ShopRite supermarkets, primarily in New Jersey, and is a major member of Wakefern Food Corporation. Amounts below are in U.S. dollars; financial figures are shown in millions unless noted.
Financial performance
| Metric | FY2015 | FY2014 |
|---|---|---|
| Sales | $1,583.8 | $1,518.6 |
| Same-store sales growth | 2.1% | 0.2% |
| Gross profit / margin | $433.1 / 27.35% | $408.5 / 26.90% |
| Operating income / margin | $43.5 / 2.75% | $29.8 / 1.96% |
| Net income / margin | $30.6 / 1.93% | $5.0 / 0.33% |
| Operating cash flow | $17.5 | $52.4 |
| Cash and cash equivalents | $59.0 | $77.4 |
| Working capital / current ratio | $39.7 / 1.41 | $16.8 / 1.11 |
| Long-term debt, including lease obligations | $44.4 | $45.2 |
Sales rose 4.3%, reflecting the full-year contribution of replacement stores in greater Morristown and Union as well as same-store growth. Gross margin improved 0.45 percentage points, supported by lower promotional spending and higher departmental margins. Class A diluted earnings per share were $2.16, versus $0.36. Fourth-quarter sales were $405.8 million and net income was $6.9 million.
Material changes and unusual items
- Reported net income includes a tax benefit of approximately $6.5 million related to settlement of New Jersey tax disputes covering fiscal years 2000–2014. The company paid $33.0 million in March 2015; it expects the net cash outflow after federal tax benefit to be about $21.0 million.
- FY2014 earnings were reduced by a $10.1 million tax charge related to the disputes, $2.6 million in after-tax closed-store lease charges and $1.1 million in after-tax replacement-store pre-opening costs. Management said FY2015 net income increased 27% excluding specified unusual items in both years.
- FY2015 operating cash flow declined mainly because of the tax settlement and payment timing. Capital expenditures were $23.5 million and dividends were $12.6 million. The company ended the year with $59.0 million cash; it had no borrowings on its $25 million revolving facility, which expires December 31, 2015.
- The company wrote off the remaining Superstorm Sandy insurance receivable after an adverse court ruling, recording a $2.27 million pre-tax charge. Pension liabilities increased to $32.2 million from $23.9 million.
Outlook, risks and contingencies
Management expects FY2016 same-store sales growth of 1%–3%, has budgeted $25 million for capital expenditures, and expects a 41%–42% effective tax rate. The board intends to continue quarterly dividends at $0.25 per Class A share and $0.1625 per Class B share. Management expects cash flow and other liquidity sources to meet foreseeable needs; medical and pension costs are expected to pressure expenses. Stirling’s expansion and remodel was expected to finish in the first quarter of FY2016.
Key risks include intense competition and thin supermarket margins; geographic concentration in New Jersey; weaker-than-typical Maryland store performance; dependence on Wakefern for merchandise, services and patronage dividends; union negotiations and underfunded multi-employer pension plans; food safety, cybersecurity and information-system disruptions; and potential asset impairment. Approximately 92% of employees are covered by collective bargaining agreements, and some contracts had expired or were due to expire within a year. The company reported effective disclosure controls and internal control over financial reporting; its auditor gave unqualified opinions on the financial statements and controls.
Investor verification points
- Assess earnings excluding the tax-settlement benefit and other unusual charges, and confirm the assumptions behind management’s stated 27% adjusted net-income growth.
- Verify cash flow after the settlement, planned remodel spending, and the renewal or replacement of the revolving credit facility.
- Review the status and funding risks of company-sponsored and multi-employer pension plans, upcoming union contracts, and the effect of healthcare and pension costs.
- Monitor Maryland store results, Wakefern’s financial condition and patronage distributions, and the remaining risks related to insurance recovery and closed-store obligations.