Weis Markets, Inc. 2013 Form 10-K Summary
Business context and reporting period
Weis Markets operates supermarkets, pharmacies, fuel stations and related food businesses in Pennsylvania, Maryland, New Jersey, New York and West Virginia. Fiscal 2013 covered 52 weeks ended December 28, 2013; fiscal 2012 also covered 52 weeks, while fiscal 2011 covered 53 weeks. The Company operated 165 retail food stores at year-end, compared with 163 in 2012, and reports one operating segment. The Weis family controlled approximately 65% of voting power.
Financial performance and key metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Net sales | $2.693 billion | $2.701 billion | (0.3%) |
| Gross profit | $745.5 million | $742.6 million | 0.4% |
| Gross margin | 27.7% | 27.5% | +20 bps |
| Operating income | $111.2 million | $127.0 million | (12.5%) |
| Operating margin | 4.1% | 4.7% | (60 bps) |
| Net income | $71.7 million | $82.5 million | (13.1%) |
| Diluted EPS | $2.67 | $3.07 | (13.0%) |
| Operating cash flow | $142.6 million | $124.0 million | 15.1% |
| Capital expenditures | $128.1 million | $109.8 million | 16.7% |
Comparable-store sales declined 2.6%, or 2.7% excluding fuel. Total sales excluding fuel declined 0.4%. Average sales per customer transaction increased 0.7%, while identical customer visits declined 3.3%. Product mix was approximately 59.0% center store, 28.7% fresh, 8.6% pharmacy, 3.5% fuel and 0.2% other.
At December 28, 2013, cash and cash equivalents were $18.0 million, marketable securities were $63.1 million and SERP investments were $8.8 million. Working capital was $211.5 million, total assets were $1.148 billion and shareholders’ equity was $834.1 million. The filing does not report outstanding borrowings or conventional long-term debt. Liquidity obligations included $223.1 million of future operating-lease payments and $19.2 million of letters of credit, which management did not expect to draw.
Cash used in investing activities was $106.8 million, primarily reflecting property and equipment purchases. Financing cash outflows were $32.3 million, consisting solely of dividends. The Company paid $1.20 per share in regular dividends and made no share repurchases.
Material changes versus the prior comparable period
- Sales were broadly flat, but comparable-store sales fell 2.6% because of increased competition, the comparison against Hurricane Sandy-related demand in 2012, and lower SNAP benefits beginning November 1, 2013.
- Gross margin improved to 27.7% from 27.5%, supported in part by lower LIFO charges and vendor allowances, but operating margin declined because operating, general and administrative expenses increased 3.0% to $634.3 million.
- Results included a $6.1 million charge related to the separation agreement with former CEO David J. Hepfinger, a $2.1 million impairment charge on four properties, a $680,000 adjustment for closed-store obligations and $2.0 million of supplemental executive retirement-plan expense.
- Depreciation and amortization increased to $58.3 million from $50.7 million as the Company expanded its capital program.
- Investment income increased to $4.7 million from $3.5 million, including higher gains on equity-security sales. The prior year included a $414,000 bargain-purchase gain related to three former Genuardi’s stores; no acquisitions occurred in 2013.
- The store base increased by two net locations, and year-end square footage increased to 8.211 million square feet from 8.054 million.
Guidance, outlook, risks and unusual items
Management estimated approximately $100.0 million of capital investment for 2014, to be funded from cash, investment reserves and internally generated operating cash flow. The Company expected slight wholesale-price inflation, excluding pharmacy, and slightly lower diesel prices. It launched additional value-oriented promotions, including the “Three Ways to Save” initiative.
Principal risks include intense food-retail competition and price pressure, weak regional economic conditions, weather disruptions, food-safety events, labor and benefit-cost inflation, fuel and utility costs, regulatory changes, information-technology disruptions or security breaches, vendor-promotion changes, self-insurance claims volatility and market risk in municipal bonds and equity securities. The Company became liable for unlimited associate health claims per member beginning March 1, 2014, compared with a $2.0 million per-member limit previously.
Operating leases are not recognized on the balance sheet under the applicable accounting rules in the filing. The Company had no material pending legal proceedings beyond routine litigation. Management and the independent auditor concluded that internal control over financial reporting was effective as of year-end.
Most important facts for investors to verify
- Whether comparable-store sales and customer traffic recover after the 2013 decline and SNAP-benefit reduction.
- Whether the planned approximately $100 million 2014 capital program generates adequate sales and operating-profit returns.
- The recurring versus nonrecurring effects of the former CEO separation charge, property impairment, closed-store adjustment and supplemental retirement-plan expense.
- Exposure to operating leases, self-insurance claims, health-benefit changes and $19.2 million of letters of credit.
- The valuation and interest-rate sensitivity of the $63.1 million marketable-securities portfolio.
- How the Company’s controlled status and approximately 65% family voting ownership affect governance and shareholder influence.