Business Context and Reporting Period
Company: Village Super Market, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: January 25, 2003 (Second Quarter of Fiscal 2003)
Business Overview: Operates a chain of 23 supermarkets under the ShopRite name in New Jersey and eastern Pennsylvania. The company is a member of Wakefern Food Corp., its principal supplier.
Key Financial Metrics
| Metric (Dollars in Thousands) | 13 Wks. Ended Jan 25, 2003 | 26 Wks. Ended Jan 25, 2003 | 13 Wks. Ended Jan 26, 2002 | 26 Wks. Ended Jan 26, 2002 |
|---|---|---|---|---|
| Sales | $233,911 | $450,449 | $230,636 | $441,468 |
| Gross Profit | $57,891 | $111,924 | $57,536 | $110,053 |
| Gross Margin % | 24.7% | 24.8% | 24.9% | 24.9% |
| Operating Income | $5,985 | $10,874 | $6,627 | $11,480 |
| Net Income | $4,040 | $6,490 | $3,724 | $6,345 |
| Diluted EPS | $1.28 | $2.06 | $1.19 | $2.03 |
| Cash & Equivalents (End of Period) | $45,133 (as of Jan 25, 2003) | |||
| Operating Cash Flow (26 Wks) | $18,594 | |||
| Total Debt (Current + Long-term) | $45,268 (as of Jan 25, 2003) |
Material Changes vs. Prior Period
- Sales Growth: Sales increased 1.4% in the quarter and 2.0% for the six-month period compared to the prior year. Same-store sales rose 2.2% in the quarter and 1.3% for the six months.
- Profitability: Net income increased 8.5% in the quarter and 2.3% for the six months. However, excluding $1.639 million in partnership income, net income for the quarter actually decreased 17.7% year-over-year.
- Margins: Gross profit margin declined slightly (24.7% vs. 24.9% prior year) due to higher promotional spending and the absence of prior-year store opening incentives. Operating expenses as a percentage of sales remained relatively stable at 21.2% for the quarter.
- Tax Rate: The effective income tax rate increased to 40.4% from 35.6% in the prior year quarter due to changes in state tax law.
- Unusual Items: The current quarter includes $1.639 million in income from partnerships (equity method). The prior year's six-month period included a $640,000 non-cash impairment charge related to a closed store.
Guidance, Outlook, and Risks
- Outlook: Management expects same-store sales in the third quarter of fiscal 2003 to be flat to a 1.5% increase. They anticipate it will be difficult to match the earnings level of the third quarter of the prior fiscal year.
- Headwinds: Future results may be impacted by a softening economy, intense competition from new store openings by competitors, increased health insurance costs, and the negative impact of a recent severe snowstorm.
- Capital Expenditures: The company has budgeted approximately $12 million for capital expenditures in fiscal 2003, including a major store expansion and the completion of the English Creek store remodel.
- Liquidity: The company maintains a $15 million unsecured revolving credit line (none outstanding as of Jan 25, 2003) and relies on operating cash flow and cash on hand for liquidity.
- Market Risk: The company is exposed to interest rate risk via a $10 million interest rate swap agreement. A 100 basis point increase in rates would increase annual interest expense by approximately $100,000.
Investor Verification Checklist
- Partnership Income: Verify the sustainability of the $1.639 million partnership income, as excluding it reveals a significant decline in core operating earnings.
- Competitive Landscape: Assess the impact of new competitor store openings in New Jersey on future same-store sales growth.
- Tax Rate Volatility: Monitor the impact of state tax law changes on the effective tax rate, which has risen significantly to 40.4%.
- Capital Allocation: Track progress on the $12 million capital expenditure budget, specifically the new store expansion and remodels.
- Debt Structure: Review the composition of debt, noting the current portion of long-term debt increased to $7.3 million from $3.1 million in the prior year.