Village Super Market, Inc. — Q3 FY2023 Form 10-Q
Reporting period: 13 and 39 weeks ended April 29, 2023; comparisons are with the periods ended April 30, 2022. Amounts below are in millions except per-share data. The company operates ShopRite and Fairway supermarkets and Gourmet Garage specialty markets, primarily in the Northeast, and is a major member of Wakefern cooperative.
Financial performance
| Metric | Q3 (13 weeks) | Year to date (39 weeks) |
|---|---|---|
| Sales | $529.3; up 5.4% | $1,612.8; up 5.2% |
| Gross profit / margin | $151.2 / 28.57% (28.21% prior year) | $455.4 / 28.23% (28.13% prior year) |
| Operating income | $14.0, versus a $4.3 loss | $45.3, versus $20.9 |
| Net income | $11.0, versus a $3.2 loss | $34.4, versus $14.2 |
| Class A EPS, basic / diluted | $0.84 / $0.75 | $2.64 / $2.36 |
Same-store sales rose 3.4% in Q3 and 3.6% year to date, primarily due to retail price inflation. Sales also benefited from the West Village Gourmet Garage opening and the remodeled Pelham store’s conversion to ShopRite. Management attributed gross-margin improvement mainly to higher departmental margins. Adjusted operating and administrative expense as a share of sales was 24.56% in Q3 and 23.91% year to date, down 0.43 percentage points in each comparison.
Cash flow, liquidity and debt
- Year-to-date operating cash flow was $68.2, versus $51.7. Capital expenditures were $35.7; investing cash outflow was $74.2, including net investment of $34.4 in Wakefern notes. Financing cash outflow was $4.3, including $9.8 of dividends and $7.8 of debt principal payments.
- Cash and cash equivalents were $124.6 at April 29, 2023, down from $134.8 at fiscal year-end. Working capital was $63.1 and the current ratio was 1.39, compared with $79.8 and 1.50 at July 30, 2022.
- Debt excluding leases totaled $84.2, including $9.4 current and $74.8 long term. Operating and finance lease obligations totaled approximately $308.7. The $75.0 revolving facility had $67.7 available; the company reported compliance with its covenants.
- Wakefern is a significant financial counterparty: cash includes $105.8 of Wakefern demand deposits, and notes receivable from Wakefern totaled approximately $92.2. Notes bear variable rates and may be prepaid by Wakefern.
Changes, outlook and risks
- Reported results include a $1.2 Q3 litigation settlement gain related to Fairway acquisition claims. The prior-year comparison included $12.3 of pension settlement charges after termination of a defined benefit plan. Management says no obligations or plan assets remain for that terminated plan.
- Management expects fiscal 2023 same-store sales growth of 3.0%–4.0%, capital expenditures of approximately $50 million, and an effective tax rate of 31%–32%. The capital budget was reduced due to replacement-store construction spending shifting into fiscal 2024. The Board’s stated intention was 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 availability are sufficient for foreseeable needs. Plans include three replacement stores scheduled to open in fiscal 2024 and 2025, remodels and technology and equipment investments.
- Key disclosed risks include intense competition and narrow grocery margins; inflation, interest rates and wage costs; dependence on Wakefern for substantially all merchandise and support services; collective bargaining coverage for approximately 88% of employees; pension, food-safety, insurance and cyber risks; and potential underperformance or integration challenges involving Fairway. Ordinary-course litigation is not expected by management to materially harm financial position, results or liquidity.
Important facts for investors to verify
- Adjusted earnings discrepancy: The reconciliation table reports adjusted net income of $10.189 million for Q3 and $33.594 million year to date, versus $5.285 million and $22.743 million, respectively, in the prior-year periods. The MD&A narrative instead cites prior-year adjusted net income of $2.297 million and $10.213 million while also stating growth of 93% and 48%. The filing does not reconcile these conflicting comparator values.
- Assess the quality and sustainability of sales growth, which management says was primarily inflation-driven, and the effect of labor, supplier, promotional and other cost pressures on margins.
- Evaluate Wakefern concentration and credit exposure, including the large demand-deposit balance and long-dated variable-rate notes.
- Track the timing and execution of the revised capital program, replacement stores, and related borrowing and lease commitments.
- Consider lease obligations alongside reported debt and monitor covenant headroom, floating-rate exposure, labor agreements and the disclosed operational risks.