Business context and reporting period
Village Super Market, Inc. operates ShopRite, Fairway Market and Gourmet Garage supermarkets and is a major member of Wakefern, its principal supplier. This unaudited Form 10-Q covers the 13 and 26 weeks ended January 29, 2022; comparisons are with the periods ended January 23, 2021. Amounts below are in millions unless stated otherwise.
Financial results
| Metric | 13 weeks | 26 weeks |
|---|---|---|
| Sales | $537.4, up 2.8% | $1,031.6, up 1.8% |
| Operating income | $14.7 vs. $6.6 | $25.2 vs. $11.5 |
| Net income | $10.1 vs. $4.6 | $17.5 vs. $7.9 |
| Gross margin | 27.84%, up 0.71 percentage points | 28.09%, up 0.47 points |
| Operating margin | 2.74% vs. 1.26% | 2.45% vs. 1.13% |
| Net margin | 1.90% vs. 0.87% | 1.69% vs. 0.78% |
For the quarter, diluted earnings per share were $0.69 for Class A and $0.50 for Class B; six-month diluted EPS was $1.20 and $0.87, respectively. Management attributed stronger earnings primarily to higher same-store sales, gross margins and lower payroll costs. Same-store sales rose 4.4% in the quarter and 3.4% for six months; two-year stacked same-store sales increased 10.9% and 10.0%, respectively. Digital same-store sales were flat year over year, but up 154% on a two-year stacked basis.
Cash flow, balance sheet and debt
Six-month operating cash flow was $40.3 versus $24.9 a year earlier. Capital expenditures were $30.5 versus $10.0, dividends $6.5, and long-term debt principal repayments $4.0. Cash increased $9.6 to $125.9. Working capital was $75.2, with a current ratio of 1.48, compared with $44.0 and 1.29 at July 31, 2021; the increase largely reflects $27.9 of Wakefern notes receivable classified as current.
Debt excluding lease obligations was $77.5, including $7.5 current and $70.0 long-term, versus $73.8 at July 31, 2021. Operating and finance lease obligations totaled approximately $309.9. The company reported $150.5 of total credit-facility capacity, including a $75.0 revolving line; no revolver borrowing was reported. Letters of credit outstanding were $7.3. The company was in compliance with its credit covenants. It held $56.5 of notes receivable from Wakefern and $88.3 of demand deposits invested there.
Material changes, outlook and risks
- Sales growth reflected New York City store performance, retail price inflation and increased SNAP redemptions, partly offset by the February 2021 closure of the Silver Spring store. Higher transactions were partly offset by smaller baskets.
- Gross-margin improvement reflected stronger departmental margins, product mix and lower Wakefern warehouse assessments, partly offset by lower patronage dividends and rebates. Lower labor costs and advertising reduced operating expenses as a share of sales; labor savings partly reflected labor shortages and productivity initiatives, while minimum-wage and market-pay increases were offsets.
- On January 28, 2022, Village amended its credit agreement, transitioning the reference rate from LIBOR to SOFR, revising a debt covenant definition and entering a $7.35 secured, 15-year term loan to acquire the Galloway shopping center. Interest-rate swaps hedge variable-rate exposure.
- Fiscal 2022 capital expenditures are expected to approximate $60 million, including store remodels, shopping-center and land purchases, a new Gourmet Garage, and technology and equipment upgrades. The board intends to continue quarterly dividends at $0.25 per Class A share and $0.1625 per Class B share. No fiscal 2022 same-store-sales guidance is provided because of COVID-19 uncertainty. The expected effective tax rate is 30.5%–31.5%.
- Management expects fiscal 2022 pension costs of approximately $15.9 million, including a $15.2 million noncash pretax settlement charge related to an expected plan termination. The plan is to be fully funded and settled through annuities or lump-sum distributions.
- Key risks include ongoing pandemic effects, labor and supply-chain pressures, intense competition and thin margins, Fairway underperformance amid reduced Manhattan commuter and tourist traffic, dependence on Wakefern, collective-bargaining and pension costs, food-safety exposure, and cybersecurity or information-system disruption. Routine litigation was not expected to materially affect financial position, results or liquidity. Management said available cash, operating cash flow and credit availability should meet foreseeable needs.
Important facts for investors to verify
- Whether sales, margins and labor-cost trends remain sustainable as inflation, wage pressure and post-pandemic comparisons change.
- Progress and returns on the planned approximately $60 million fiscal 2022 capital program and the Galloway, Vineland and other property investments.
- Fairway performance and integration, including the effect of Manhattan traffic recovery on sales and profitability.
- The timing and cash-funding consequences of the expected pension-plan termination and $15.2 million settlement charge.
- Wakefern-related exposure, including notes, deposits, patronage dividends and supplier dependence, as well as compliance with credit covenants and debt-service capacity.