Ingles Markets, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2024, the 13 weeks ended December 30, 2023; comparable period ended December 24, 2022. Ingles operated 198 supermarkets across six Southeastern states. Figures are unaudited.
Financial performance
| Metric | Quarter ended Dec. 30, 2023 | Quarter ended Dec. 24, 2022 | Change |
|---|---|---|---|
| Net sales | $1,481.1 million | $1,493.3 million | Down 0.8% |
| Gross profit / margin | $348.8 million / 23.6% | $371.2 million / 24.9% | Down 6.0%; margin down 1.3 percentage points |
| Operating and administrative expenses | $289.8 million / 19.6% of sales | $276.2 million / 18.5% | Up 4.9% |
| Operating income | $59.6 million | $95.8 million | Down 37.7% |
| Net income | $43.4 million | $69.4 million | Down 37.4% |
| Class A basic / diluted EPS | $2.33 / $2.28 | $3.73 / $3.65 | Lower |
| Operating cash flow | $15.5 million | $57.3 million | Down $41.7 million |
| Capital expenditures | $63.2 million | $59.3 million | Up $3.9 million |
Gross margin pressure reflected inflation and raw-material shortages. Excluding fuel, retail segment gross profit declined 182 basis points. Comparable grocery sales excluding fuel increased 1.0%; total sales less fuel increased 0.2%. The prior-year quarter included a record sales week associated with weather events. Higher labor costs, self-insurance claims, taxes and professional fees contributed to expense growth. Other income rose to $3.6 million, primarily from increased interest income on cash.
Financial position and liquidity
- At December 30, 2023, cash and cash equivalents were $275.0 million; current assets were $911.0 million and current liabilities were $283.0 million.
- Total debt was approximately $546.9 million, versus $564.5 million at December 24, 2022. The company had no borrowings on its $150 million revolving line of credit, which matures in June 2026. Cash less reported debt was approximately $271.9 million.
- Operating cash flow fell mainly because of lower net income and working-capital needs, including changes in accounts payable and accrued expenses. Capital spending exceeded quarterly operating cash flow; cash declined $53.5 million to $275.0 million.
- Long-term debt agreements include financial covenants and cross-default provisions. The company reported covenant compliance and $484.4 million of excess net worth under specified covenant calculations.
- Cash dividends paid were $0.165 per Class A share and $0.150 per Class B share. The company expects regular quarterly dividends to continue, subject to board discretion and debt restrictions.
Outlook, risks and notable items
- Management plans fiscal 2024 capital expenditures of approximately $160–$200 million, primarily for store improvements and remodeling, one store expected to open in fiscal 2024, technology, equipment and the milk-processing plant. It expects annual spending of approximately $120–$160 million thereafter to maintain the store base.
- Management believes available cash, operating cash flow and financing resources should meet foreseeable needs, but notes financing may not be available on acceptable terms or when needed.
- Risks cited include competition and pricing pressure, lower retail fuel prices, labor and utility cost increases, food-distribution disruptions, economic or climatic conditions, financing availability and execution of store expansion and improvement plans.
- Self-insurance reserves totaled $34.2 million, including $4.3 million of expected recoveries recorded as a receivable. Insurance expense increased to $13.1 million from $10.8 million year over year. Estimates for claims incurred but not reported may fluctuate.
- Ordinary-course legal proceedings are pending; management does not expect them to materially affect financial position, results or cash flows. No asset impairments were recorded in the quarter.
- In January 2024, the company exchanged adjoining properties with an entity in which its chairman was a principal and received $2.3 million in addition to the exchanged property; independent appraisals were obtained and the audit committee approved the transaction.
- Interest-rate swaps had an aggregate notional amount of $145.7 million. Changes in swap fair value produced a $3.8 million after-tax other comprehensive loss for the quarter. Management reported the transition from LIBOR to SOFR had no material financial-statement impact.
- Management cautions that first-quarter results are not necessarily indicative of full-year results. Disclosure controls were deemed effective at quarter-end.
Important facts for investors to verify
- Whether gross-margin pressure from product costs and inflation persists, and whether sales growth can offset it.
- Drivers and sustainability of higher operating expenses, particularly labor and self-insurance costs.
- Fiscal 2024 capital spending, store-opening and remodeling execution, and the effect on cash and debt.
- Working-capital trends and operating cash flow relative to planned investment and dividends.
- Debt covenant headroom, floating-rate exposure, swap coverage and any restrictions on dividends.
- Developments in self-insurance estimates, legal matters and the related-party property exchange.