Business Context and Reporting Period
Company: Village Super Market, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: April 24, 2004 (13 weeks) and 39 weeks ended April 24, 2004.
Operations: Operates 23 ShopRite supermarkets in New Jersey and eastern Pennsylvania. The Company is a member of Wakefern Food Corp., the nation's largest retailer-owned food cooperative.
Key Financial Metrics
| Metric (in thousands) | 13 Wks Ended Apr 24, 2004 |
13 Wks Ended Apr 26, 2003 |
39 Wks Ended Apr 24, 2004 |
39 Wks Ended Apr 26, 2003 |
|---|---|---|---|---|
| Sales | $229,531 | $221,450 | $698,473 | $671,899 |
| Gross Profit | $58,707 | $55,169 | $177,960 | $167,093 |
| Gross Margin % | 25.6% | 24.9% | 25.5% | 24.9% |
| Operating Income | $5,143 | $3,880 | $17,011 | $14,755 |
| Net Income | $2,744 | $1,897 | $8,914 | $8,388 |
| Diluted EPS | $0.87 | $0.60 | $2.83 | $2.66 |
| Cash from Operations (39 wks) | $16,375 (2004) vs $16,652 (2003) | |||
| Total Assets | $217,963 (Apr 24, 2004) | |||
| Total Debt (Current + Long-term) | $37,927 (Apr 24, 2004) | |||
| Working Capital | $29,924 (Apr 24, 2004) |
Material Changes vs. Prior Period
- Sales Growth: Sales increased 3.6% in the quarter and 4.0% for the nine-month period compared to the prior year. Growth was driven by store remodels, new store performance, and inflation, offsetting a softer economy in the prior year.
- Profitability: Net income rose 45% in the quarter and 6% for the nine-month period. Excluding $967,000 in partnership income received in the prior year, nine-month net income would have increased 20%.
- Margins: Gross profit margin improved to 25.6% (quarter) and 25.5% (nine-months) from 24.9% in the prior year, aided by higher patronage dividend estimates and reduced assessment charges from Wakefern.
- Expenses: Operating and administrative expenses as a percentage of sales increased slightly (22.3% vs 22.2% in the quarter) due to higher fringe benefits, utilities, and marketing costs, though payroll costs declined.
- Interest Expense: Net interest expense decreased due to reduced borrowing levels and higher interest income from cash invested at Wakefern.
Outlook, Risks, and Management Commentary
- Liquidity: The Company maintains a working capital ratio of 1.51 to 1. It has a $15 million unsecured revolving credit line (none outstanding) expiring September 16, 2004, which management expects to replace.
- Capital Expenditures: Budgeted at approximately $13 million for fiscal 2004, including expansion of the Bernardsville store and equipment for the Somers Point replacement store.
- Related Party Transactions: The Company invested $20.1 million in a one-year note receivable from Wakefern (principal supplier) in January 2004, earning interest at prime minus 1.5%.
- Risks: Key risks include local economic conditions, competitive pressures, union contract negotiations, pension asset returns, and cost increases from Wakefern.
- Accounting Changes: The Company adopted FASB Interpretation No. 46 (Variable Interest Entities) effective April 24, 2004, with no material impact. New pension disclosure requirements (SFAS 132 revised) were also implemented.
Investor Verification Checklist
- Related Party Concentration: Verify the terms and risks associated with the $20.1 million note receivable and $16.6 million demand deposits held at Wakefern, the Company's principal supplier.
- Debt Obligations: Confirm the repayment schedule for the unsecured Senior Notes, noting the first installment of $4.3 million was paid in the period.
- Pension Funding: Review the status of the three defined benefit pension plans; the Company expects to contribute an additional $274,000 in the fourth quarter.
- Margin Sustainability: Assess whether the improved gross margins (driven by patronage dividends and reduced assessments) are sustainable given inflationary pressures on cost of goods sold.
- Capital Expenditure Execution: Monitor the progress and cost of the planned $13 million in capital expenditures for store remodels and expansions.