Business Context and Reporting Period
Company: Weis Markets, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: 13 weeks and 39 weeks ended September 25, 2010
Business Overview: A top 50 U.S. food and drug retailer operating 164 retail food stores and 15 SuperPetz pet supply stores across Pennsylvania, Maryland, New Jersey, New York, and West Virginia. The company operates as a single reportable segment.
Key Financial Metrics
| Metric (in thousands) | 13 Weeks Ended Sept 25, 2010 | 39 Weeks Ended Sept 25, 2010 |
|---|---|---|
| Net Sales | $639,967 | $1,957,899 |
| Gross Profit | $177,955 | $542,494 |
| Net Income | $16,316 | $54,207 |
| Earnings Per Share (Diluted) | $0.61 | $2.02 |
| Cash Flow from Operations | N/A | $112,038 |
| Cash and Cash Equivalents (Ending) | $129,776 | $129,776 |
| Total Debt | None reported | None reported |
Margins (39 Weeks): Gross Profit Margin: 27.7%; Operating Margin: 4.3%; Net Income Margin: 2.8%.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 2.7% for the quarter and 6.1% year-to-date compared to 2009. Comparable store sales increased 0.1% for the quarter and 1.1% year-to-date.
- Profitability: Net income rose 4.9% for the quarter and 14.7% year-to-date. Operating income increased 3.8% for the quarter and 16.6% year-to-date.
- Cost Pressures: Cost of sales increased 2.2% (quarter) and 5.3% (YTD). Diesel fuel costs rose 15.8% (quarter) and 15.1% (YTD). Employee-related costs increased 3.9% (quarter) and 6.3% (YTD), partly due to the 2009 acquisition of Giant Markets stores.
- Balance Sheet: Cash and cash equivalents increased from $67.1 million to $129.8 million. Total assets grew from $916.5 million to $963.2 million.
Guidance, Outlook, and Risks
Management Commentary: Management employed a disciplined marketing strategy, including a "Price Freeze" on 1,600 staple items and "Weis Rewards" loyalty programs, to maintain market share. Pharmacy and produce sales showed positive trends. Management expects health care benefit costs to increase approximately 10% in 2010.
Capital Expenditures: Estimated investment for 2010 is approximately $62.1 million, down from a previously reported $102.8 million due to project completion dates shifting to 2011. Management remains committed to the full expansion program.
Risks and Contingencies:
- Utility Costs: Pennsylvania electricity deregulation is anticipated to increase utility costs by 30% for consumers; the company saw a 22.7% increase in Q3.
- Competition: Competitors with greater financial resources may adversely affect the company's position.
- Market Risk: No material changes in market risk reported; exposure includes fuel prices and commodity inflation.
Investor Verification Checklist
- Verify the sustainability of the 14.7% year-to-date net income growth given rising fuel and utility costs.
- Confirm the impact of the "Price Freeze" program on long-term margin stability versus short-term volume gains.
- Monitor the execution of the $62.1 million capital expansion plan and the shift of projects to 2011.
- Assess the trajectory of self-insured health care costs, which are projected to rise 10% in 2010.
- Review the company's ability to pass on increased electricity costs to customers in a competitive retail environment.