Business Context and Reporting Period
Company: Village Super Market, Inc. (ShopRite banner)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: 13 weeks and 39 weeks ended April 27, 2002
Business Overview: Operates a chain of 23 supermarkets in New Jersey and eastern Pennsylvania. The company is a member of the Wakefern Food Cooperative.
Key Financial Metrics
| Metric (Dollars in Thousands) | 13 Wks Ended Apr 27, 2002 |
13 Wks Ended Apr 28, 2001 |
39 Wks Ended Apr 27, 2002 |
39 Wks Ended Apr 28, 2001 |
|---|---|---|---|---|
| Sales | $216,525 | $199,008 | $657,992 | $609,961 |
| Gross Profit | $53,671 | $48,952 | $163,723 | $147,805 |
| Gross Margin % | 24.8% | 24.6% | 24.9% | 24.2% |
| Operating Income | $4,613 | $2,264 | $16,093 | $11,351 |
| Net Income | $2,338 | $1,085 | $8,683 | $5,887 |
| Diluted EPS | $0.74 | $0.35 | $2.77 | $1.92 |
| Operating Cash Flow (39 Wks) | $14,251 (2002) vs $9,092 (2001) | |||
| Capital Expenditures (39 Wks) | $17,101 (2002) vs $10,623 (2001) | |||
| Total Assets | $195,582 (Apr 27, 2002) | |||
| Total Debt (Current + Long-term) | $47,527 (Apr 27, 2002) | |||
| Working Capital | $16,467 (Apr 27, 2002) |
Material Changes vs. Prior Period
- Sales Growth: Sales increased 8.8% in the quarter and 7.9% for the nine-month period. Same-store sales increased 4.9% (quarter) and 4.8% (nine months), driven by improved sales in stores near the closed Ventnor location.
- Profitability: Net income surged 115% in the quarter and 47% for the nine-month period. Excluding non-cash impairment charges in the prior year, net income increased 30% (quarter) and 38% (nine months).
- Margins: Gross profit margins improved due to better product mix and new store incentives. Operating expenses as a percentage of sales declined in the quarter (21.7% vs 21.9%) but increased slightly for the nine-month period (21.5% vs 21.2%) due to higher fringe benefit costs.
- Impairment Charges: The company recorded a $640,000 non-cash impairment charge in the first quarter of fiscal 2002 for the Ventnor store equipment. This compares to a $1,122,000 charge in the prior year for a favorable sublease write-off.
- Liquidity: Operating cash flow increased significantly to $14.3 million (39 weeks) compared to $9.1 million in the prior year, despite higher inventory builds for new stores.
Guidance, Outlook, and Risks
- Store Activity: Opened new stores in Garwood (Sept 2001) and Hammonton (March 2002); closed the Ventnor store (Feb 2002). Capital expenditures for fiscal 2002 are budgeted at approximately $20 million.
- Competitive Outlook: Management anticipates competitive openings in the Ventnor area and near other stores in the fourth quarter. These are projected to reduce same-store sales growth to a range of 1.5% to 3.0% for the next several quarters.
- Tax Risks: The effective tax rate increased slightly due to state law changes. New Jersey has proposed substantial business tax increases, including an alternative minimum tax based on sales, though these are not yet enacted.
- Wakefern/Big V Bankruptcy: Big V Supermarkets, the largest Wakefern member, is in Chapter 11 reorganization. Wakefern has agreed to purchase Big V's assets for at least $185 million. While the outcome is uncertain, a failure to pay withdrawal fees could increase costs for Village Super Market.
Investor Verification Checklist
- Competitive Impact: Verify the timing and impact of new competitor openings in the Ventnor and surrounding areas on same-store sales.
- Big V Resolution: Monitor the Bankruptcy Court's approval of Wakefern's purchase of Big V assets to assess potential supply chain cost implications.
- Capital Allocation: Track capital expenditure progress against the $20 million budget, specifically regarding the completion of the Hammonton store.
- State Tax Legislation: Watch for enactment of proposed New Jersey business tax increases that could affect future tax provisions.
- Inventory Levels: Review inventory turnover given the $3.4 million increase in merchandise inventories over the nine-month period.