Village Super Market, Inc. — Q1 FY2022 Form 10-Q
Reporting period: 13 weeks ended October 30, 2021; comparison is the 13 weeks ended October 24, 2020. Dollar amounts are in thousands except per-share amounts. Village operates ShopRite, Fairway Markets and Gourmet Garage supermarkets.
Financial performance
| Metric | Q1 FY2022 | Prior-year quarter | Change |
|---|---|---|---|
| Sales | $494,211 | $490,136 | +0.8% |
| Gross profit | $140,180 | $137,963 | Gross margin 28.36%, up 0.21 percentage point |
| Operating income | $10,562 | $4,886 | Operating margin 2.14% vs. 1.00% |
| Net income | $7,328 | $3,360 | Net margin 1.48% vs. 0.69% |
| Operating cash flow | $7,887 | $(3,353) | Improved by $11,240 |
| Capital expenditures | $13,343 | $3,301 | Higher investment in stores, technology and equipment |
Class A basic and diluted earnings per share were $0.56 and $0.50, respectively; Class B basic and diluted earnings per share were $0.37.
Cash and cash equivalents were $105,087 at October 30, down from $116,314 at July 31, 2021. Working capital was $68,358, with a 1.44 current ratio. Management attributes much of the working-capital increase from year-end to $27,635 of Wakefern notes receivable classified as current.
Total debt excluding lease obligations was $72,017, including $6,976 current; lease obligations were $294,294. The revolving facility had $75,000 of capacity and $7,336 of letters of credit outstanding. The company reported compliance with its debt covenants. Cash, cash equivalents and notes receivable from Wakefern are significant liquidity resources, but also create counterparty concentration.
Changes and management commentary
- Same-store sales rose 2.3%; the two-year stacked increase was 9.1%. Digital same-store sales were flat year over year but up 153% on a two-year stacked basis. Food inflation and higher SNAP benefits supported sales; increased transactions were partly offset by smaller baskets.
- Gross margin improved primarily through higher departmental margins, favorable mix and lower promotions, partly offset by higher Wakefern warehouse assessment charges. Operating and administrative expense fell as a share of sales, mainly due to lower payroll and advertising costs; digital-related transportation and external fees increased.
- Net income more than doubled, primarily reflecting higher same-store sales and margins and lower payroll costs. Operating cash flow turned positive, with the improvement attributed to higher earnings and working-capital timing, particularly Wakefern payables.
- Cash declined by $11,227 during the quarter after investing and financing outflows, including capital expenditures, dividends, debt principal payments and additional Wakefern notes receivable.
Outlook, risks and contingencies
- No fiscal 2022 same-store sales guidance was provided because of uncertainty surrounding COVID-19 and its business effects. Management expects fiscal 2022 capital expenditures of $40,000–$60,000, subject to real estate transaction timing, and an effective tax rate of 30.5%–31.5%.
- The board’s current intention is to continue quarterly dividends at $0.25 per Class A share and $0.1625 per Class B share. Management believes cash, operating cash flow and credit-facility availability will meet foreseeable needs.
- Management expects fiscal 2022 net periodic pension cost of approximately $15,891, including a $15,155 non-cash, pre-tax settlement charge tied to a plan termination expected during the year. The plan is expected to be fully funded, with remaining assets used to purchase annuities for eligible participants who do not elect a lump sum.
- Principal risks include ongoing pandemic effects, labor shortages and costs, supply-chain disruption, inflation, intense grocery competition, Fairway underperformance and integration challenges, dependence on Wakefern, union and pension costs, food safety, information-system and cybersecurity incidents, and potential asset impairment. Approximately 89% of employees are covered by collective bargaining agreements.
- The company is involved in ordinary-course litigation; management does not expect its resolution to materially affect financial position, results or liquidity. The filing states the company does not anticipate NMTC credit recapture, though noncompliance could create an indemnification obligation.
Important facts for investors to verify
- Whether sales and margin gains persist as the company cycles prior-year pandemic effects, inflation and changing customer basket sizes.
- Whether the $40,000–$60,000 capital-spending plan, including remodels and a new Gourmet Garage store, affects cash generation or requires additional financing.
- The timing, funding and actual accounting impact of the expected pension-plan termination and settlement charge.
- Fairway performance and the company’s dependence on Wakefern, including its supplier relationship, deposits, receivables and patronage dividends.
- Future liquidity and covenant headroom, as well as the effects of labor, competitive, cybersecurity and other disclosed risks.