Business Context and Reporting Period
Company: Village Super Market, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: 13 weeks and 39 weeks ended April 25, 2009 (Fiscal Year 2009)
Business Overview: The Company operates 26 ShopRite supermarkets in New Jersey and northeastern Pennsylvania. It is the second-largest member of Wakefern Food Corporation, a retailer-owned cooperative. The Company competes through low pricing, customer service, and a broad product range, including private labels.
Key Financial Metrics
All figures in thousands, except per share data.
| Metric | 13 Wks Ended Apr 25, 2009 |
39 Wks Ended Apr 25, 2009 |
39 Wks Ended Apr 26, 2008 |
|---|---|---|---|
| Sales | $293,474 | $897,172 | $829,794 |
| Gross Profit | $80,070 | $244,603 | $225,169 |
| Gross Margin % | 27.28% | 27.26% | 27.14% |
| Operating Income | $10,922 | $35,873 | $26,857 |
| Net Income | $6,252 | $20,575 | $15,652 |
| Net Income Margin % | 2.13% | 2.29% | 1.89% |
| Cash from Operations | N/A | $30,923 | $24,686 |
| Cash & Equivalents (End) | $47,268 | $47,268 | $33,600 |
| Total Debt (Current + Long-term) | $34,990 | $34,990 | $30,961 |
| Working Capital | $28,845 | $28,845 | $8,871 |
Per Share Data (Class A Common Stock):
- Basic EPS (13 Wks): $0.58 (vs $0.46 prior year)
- Diluted EPS (13 Wks): $0.47 (vs $0.37 prior year)
- Basic EPS (39 Wks): $1.91 (vs $1.48 prior year)
- Diluted EPS (39 Wks): $1.55 (vs $1.19 prior year)
Material Changes vs. Prior Period
- Sales Growth: Sales increased 7.3% in the quarter and 8.1% for the nine-month period compared to the prior year. Same-store sales rose 7.3% in the quarter and 5.9% for the nine-month period, driven by improved transaction counts and the inclusion of two new stores (Franklin and Galloway) in same-store calculations.
- Profitability: Net income increased 27.2% for the quarter and 31.4% for the nine-month period. Operating income margins improved due to operating leverage from sales growth and reduced payroll costs.
- Gross Margin: Gross margin percentage decreased slightly in the quarter (27.28% vs 27.63%) due to higher promotional spending and lower departmental margins, partially offset by lower LIFO expense. For the nine-month period, gross margin increased slightly (27.26% vs 27.14%) due to improved product mix and departmental margins.
- Liquidity: Working capital increased significantly from $8.87 million to $28.85 million, primarily due to a portion of the note receivable from Wakefern becoming current. Cash and cash equivalents remained stable at approximately $47.3 million.
- Capital Expenditures: Capital expenditures were $20.17 million for the nine-month period, primarily for the construction of a replacement store in Washington, NJ, and a new store in Marmora, NJ.
Guidance, Outlook, Risks, and Contingencies
Management Commentary & Outlook:
- Management expects same-store sales to increase by 1.5% to 3.5% in the fourth quarter of fiscal 2009.
- The Company anticipates continued consumer trends of trading down to lower-priced items and increased sale item penetration due to the weaker economy.
- Inflation is expected to be lower in fiscal 2010 than in 2009 or 2008.
- Total capital expenditures for fiscal 2009 are budgeted at $27.0 million; $20.17 million has been expended as of April 25, 2009.
- The effective income tax rate is expected to be approximately 42%.
Risks and Contingencies:
- Washington Store Litigation: On April 22, 2009, a court invalidated the developer's approval for the Washington replacement store. The Company has invested $9.7 million in construction and equipment. If approval is not obtained, a material impairment charge may be recorded. The current store's leasehold interest is also in litigation.
- Wakefern Dependency: The Company purchases substantially all merchandise from Wakefern. Any material change in Wakefern's operations or relationship could adversely impact the Company.
- Pension Costs: Approximately 91% of employees are covered by collective bargaining agreements. The Company expects increased contributions to multi-employer pension plans and potential increases in health care and pension costs.
- Financial Institution Risk: Significant cash deposits exceed federally insured limits, exposing the Company to potential losses given financial institution instability.
Key Facts for Investor Verification
- Verify the status of the Washington replacement store approval and potential impairment of the $9.7 million investment.
- Monitor the outcome of the litigation regarding the leasehold interest in the current Washington store.
- Assess the impact of increased promotional spending on future gross margins.
- Review the Company's exposure to Wakefern Food Corporation and any changes in their cooperative relationship.
- Track the Company's ability to manage rising pension and health care costs under collective bargaining agreements.
- Confirm the stability of cash deposits held at financial institutions exceeding insured limits.