Business Context and Reporting Period
Weis Markets, Inc. is a conventional supermarket chain operating 197 stores and approximately 23,000 associates in Pennsylvania and six surrounding states. The company self-distributes approximately 67% of products and operates three manufacturing facilities. This unaudited Form 10-Q covers the 13 and 26 weeks ended June 26, 2021, compared with June 27, 2020. The filing was dated August 5, 2021.
Weis reported one operating segment. Online ordering was available through curbside pickup at 188 locations and home delivery through Shipt at 177 locations. Weis 2 Go Online sales increased more than 32% during the first 26 weeks of 2021 versus the prior-year period.
Financial Metrics
| Metric | 13 Weeks Ended June 26, 2021 | 13 Weeks Ended June 27, 2020 | 26 Weeks Ended June 26, 2021 | 26 Weeks Ended June 27, 2020 |
|---|---|---|---|---|
| Net sales | $1,047.3 million | $1,098.7 million | $2,053.7 million | $2,084.5 million |
| Gross profit | $281.2 million | $292.9 million | $548.6 million | $557.0 million |
| Gross margin | 26.8% | 26.7% | 26.7% | 26.7% |
| Income from operations | $45.6 million | $56.0 million | $77.4 million | $93.4 million |
| Operating margin | 4.3% | 5.1% | 3.8% | 4.5% |
| Net income | $33.5 million | $41.5 million | $57.7 million | $68.2 million |
| Net margin | 3.2% | 3.8% | 2.8% | 3.3% |
| Diluted EPS | $1.24 | $1.54 | $2.15 | $2.53 |
For the first 26 weeks, net cash provided by operating activities was $99.8 million, compared with $139.1 million in the prior-year period. Capital expenditures were $77.8 million versus $49.7 million, and net cash used in investing activities was $78.6 million. Dividends paid were $16.7 million in both periods. Cash and cash equivalents increased $4.6 million to $141.2 million at June 26, 2021.
At June 26, 2021, marketable securities totaled $115.5 million and total shareholders’ equity was $1.187 billion. Total liabilities were $638.9 million. The company had no material outstanding borrowing under its revolving credit facility; availability was $25.3 million after $4.7 million of letters of credit.
Material Changes Versus the Prior Comparable Period
- Second-quarter net sales decreased 4.7%; first-half sales decreased 1.5%. Management attributed the decline primarily to comparison with elevated COVID-19-related demand in 2020.
- Comparable-store sales decreased 5.8% in the quarter and 2.4% for the first half, including fuel. Excluding fuel, comparable-store sales decreased 7.7% and 3.6%, respectively. Two-year stacked comparable-store sales increased 18.3% for the quarter and 16.1% for the first half.
- Pharmacy and fuel sales increased as percentages of total sales, while grocery sales declined as a percentage of total sales. Fuel sales benefited from higher gasoline prices.
- Operating income declined 18.6% in the quarter and 17.2% for the first half. Operating, general and administrative expenses increased 1.6% for the first half despite lower sales, driven in part by higher health-care benefits, fixed expenses and utilities.
- Gross margin was broadly stable, increasing 10 basis points in the quarter and remaining 26.7% for the first half. First-half LIFO inventory valuation expense was $865 thousand, compared with $3.3 million in 2020.
- Investment income and interest expense improved to $3.8 million for the first half from a $1.0 million loss in the prior-year period, primarily reflecting changes in investment results and SERP investments.
Outlook, Commentary, Risks, and Unusual Items
Management expects overall product costs to remain level or increase because of recent food-retail inflationary indicators. Management stated that it remains confident in long-term sales growth but acknowledged intense competition and the possibility that competitors with greater resources could adversely affect its competitive position.
Management planned approximately $135 million of capital expenditures for 2021, including new stores, remodeling, site acquisitions, technology, distribution facilities and transportation equipment. Cash from operations, available credit and the investment portfolio are expected to fund working capital, capital expenditures, acquisitions, debt requirements and dividends.
The company approved a quarterly dividend of $0.31 per share payable August 9, 2021, and expects to continue regular quarterly dividends, although future payments remain subject to board approval and financial conditions. The board’s share-repurchase authorization had 752,468 shares remaining.
Key risks identified include competition, reputational and financial risks, investment and infrastructure risks, cybersecurity and data privacy, supply-chain and third-party risks, pandemics and related government or consumer responses, and legal or regulatory matters. Management stated that there were no material changes in market risk, no material subsequent events requiring disclosure, and no material changes affecting internal control over financial reporting.
Facts Investors Should Verify
- Whether sales and comparable-store trends continue to normalize after the unusually strong COVID-19 comparison period.
- Progress toward the approximately $135 million 2021 capital-expenditure plan and its effect on free cash flow.
- Labor, health-care, occupancy, utility, supply-chain and food-cost inflation trends affecting operating margins.
- Availability and terms of the revolving credit facility, which matures September 1, 2022, and the $4.7 million of outstanding letters of credit.
- Sustainability of the $0.31 quarterly dividend and any future share repurchases amid increased capital spending.
- Performance and valuation of the $115.5 million marketable-securities portfolio and the $26.3 million SERP investment.