Business context and reporting period
Village Super Market operates ShopRite and Fairway supermarkets and Gourmet Garage specialty markets in the Northeast, and is a major member of Wakefern, its principal supplier and cooperative. This unaudited Form 10-Q covers the 13-week second quarter and 26 weeks ended January 27, 2024, compared with periods ended January 28, 2023. Dollar amounts below are in thousands unless noted.
Key financial results
| Metric | 13 weeks ended Jan. 27, 2024 | 13 weeks ended Jan. 28, 2023 | 26 weeks ended Jan. 27, 2024 | 26 weeks ended Jan. 28, 2023 |
|---|---|---|---|---|
| Sales | $575,579 | $563,866 | $1,111,933 | $1,083,555 |
| Gross profit / margin | $163,442 / 28.40% | $154,879 / 27.47% | $316,391 / 28.45% | $304,164 / 28.07% |
| Operating income / margin | $18,442 / 3.21% | $16,117 / 2.86% | $32,593 / 2.93% | $31,294 / 2.89% |
| Net income / margin | $14,480 / 2.52% | $12,322 / 2.19% | $26,066 / 2.34% | $23,405 / 2.16% |
| Diluted EPS, Class A / Class B | $0.97 / $0.71 | $0.85 / $0.62 | $1.75 / $1.27 | $1.61 / $1.17 |
Quarterly sales increased 2.1% and six-month sales increased 2.6%. Same-store sales rose 2.2% for the quarter and 2.1% for the half year. Management cited retail price inflation, digital sales growth, higher pharmacy sales, and continued growth at recently remodeled stores; the Gourmet Garage closure partly offset sales growth.
Cash flow, liquidity, and debt
- Six-month operating cash flow was $48,674, versus $48,357 a year earlier. Capital expenditures were $34,783; cash declined $7,564 to $133,346.
- At January 27, 2024, working capital was $60,061, down from $67,714 at July 29, 2023; the current ratio was 1.34 versus 1.38. Management expects cash, operating cash flow, and credit availability to meet foreseeable liquidity needs.
- Debt excluding lease obligations totaled $77,022, including $9,370 current; long-term debt was $67,652. The company also reported $277,435 of operating lease obligations and $20,857 of finance lease obligations. No borrowings were reported on the $75,000 revolving facility; $67,664 remained available, and the company was in compliance with its covenants.
- Cash and cash equivalents included $114,033 of demand deposits invested at Wakefern. Notes receivable from Wakefern totaled $98,554, creating material counterparty concentration. The company also invested $4,345 net in Wakefern notes during the half year.
Material changes and management commentary
Net income rose 18% for the quarter and 11% for the half year, reflecting sales growth, improved gross margin, and higher interest income. Gross-margin gains included better departmental margins, improved shrink and commissary operations, and higher Wakefern patronage dividends and rebates; management noted that patronage dividends received above amounts accrued benefited both current- and prior-year comparisons. Operating and administrative expense as a share of sales increased 0.64 percentage points in the quarter and 0.39 points for the half year, primarily from labor and benefits, facility repairs, security, technology licensing, and digital-sales fees. Interest income increased with higher rates and larger Wakefern balances; interest expense also rose because of higher average debt.
Six-month capital spending and investments were funded alongside $6,701 of dividends, $5,387 of debt principal payments, and $1,358 of share repurchases. Capital expenditures primarily supported replacement stores, remodels, real estate, and technology and facility upgrades. The Old Bridge replacement-store project is underway; the company had invested $14,700 in the associated real estate partnership at period end, with its total share of project costs estimated at $15,000–$20,000 over two to three years.
Guidance, risks, and contingencies
- Fiscal 2024 same-store sales growth is expected to be 1.0%–3.0%. Budgeted fiscal 2024 capital expenditures were revised down to approximately $70,000, largely because replacement-store construction spending shifted into fiscal 2025.
- The board’s current intention is to maintain quarterly dividends at $0.25 per Class A share and $0.1625 per Class B share. The expected fiscal 2024 effective tax rate is 31.0%–32.0%.
- The company expects Wakefern to exercise its NMTC financing put option in December 2024, which management believes would provide a net benefit of $1,728; this is an expectation, not a completed transaction. Noncompliance with program requirements could trigger tax-credit recapture and indemnification obligations.
- Principal disclosed risks include intense competition and narrow grocery margins; inflation, interest-rate and regional economic changes; reliance on Wakefern for merchandise, services, patronage dividends and investments; labor costs and collective bargaining (approximately 92% of employees are covered by agreements); food safety; multi-employer pension exposure; self-insured claims; asset impairment; and cybersecurity or information-system disruptions.
- The company is involved in ordinary-course litigation; management does not expect its resolution to materially adversely affect financial position, results, or liquidity. Disclosure controls were assessed as effective, with no material quarter-over-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Whether same-store sales and margins remain supported by underlying volume, shrink and operating performance, rather than inflation and above-accrual Wakefern patronage dividends.
- Wakefern’s financial condition and the company’s exposure through demand deposits, notes receivable, purchasing dependence, and cooperative benefits.
- Execution, timing, and total costs of Old Bridge and other replacement-store projects, including the fiscal 2024–2025 capex schedule.
- Debt repayment, available revolver capacity and covenant headroom, alongside substantial lease obligations and planned dividends and repurchases.
- Progress and conditions surrounding the expected December 2024 NMTC put-option benefit and the remaining recapture period.