Business Context and Reporting Period
Company: Village Super Market, Inc. (ShopRite banner)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: October 27, 2001 (First Quarter of Fiscal 2002)
Operations: Operates 23 supermarkets in New Jersey and eastern Pennsylvania.
Key Financial Metrics
| Metric | Q1 2002 (13 Wks) | Q1 2001 (13 Wks) |
|---|---|---|
| Sales | $210,831,000 | $198,033,000 |
| Gross Profit | $52,516,000 | $47,919,000 |
| Gross Margin | 24.9% | 24.2% |
| Operating Income | $4,853,000 | $4,228,000 |
| Net Income | $2,621,000 | $2,220,000 |
| Diluted EPS | $0.84 | $0.73 |
| Operating Cash Flow | $6,793,000 | $1,395,000 |
| Capital Expenditures | ($5,394,000) | ($5,245,000) |
| Working Capital | $16,646,000 | $17,087,000 (Prior Year End) |
| Total Debt (Current + Long-term) | $45,931,000 | $46,090,000 (Prior Year End) |
Material Changes vs. Prior Period
- Sales Growth: Sales increased 6.5% year-over-year. Excluding the new Garwood store and a closed store, comparable sales rose 5.8%.
- Profitability: Net income increased 18% to $2.62 million. Excluding a $640,000 non-cash impairment charge, adjusted net income increased 36%.
- Margins: Gross profit margin improved to 24.9% from 24.2%, driven by higher-margin department sales and incentives from the new store opening. Operating expense ratio increased slightly to 21.4% from 21.1% due to higher fringe benefit and occupancy costs.
- Accounting Changes: The company adopted FASB Statements 141 and 142, ceasing the amortization of goodwill. This reduced depreciation and amortization expense compared to the prior year.
- Impairment Charge: A $640,000 non-cash charge was recorded to write off equipment at the Ventnor store, which is expected to close in early 2002 following lease negotiations.
Outlook, Risks, and Management Commentary
- Expansion: The company opened a 59,000 sq. ft. store in Garwood, NJ, in September 2001. Construction began on a new superstore in Hammonton, NJ. Total capital expenditures for fiscal 2002 are budgeted at approximately $20 million.
- Liquidity: Primary sources of liquidity include cash on hand ($32.0 million), operating cash flow, and equipment financing. Working capital ratio stands at 1.29 to 1.
- Supply Chain Risk (Wakefern/Big V): Big V Supermarkets, a major member of the Wakefern Food Cooperative, filed for Chapter 11 bankruptcy and intends to depart the cooperative. While a preliminary agreement for the purchase of Big V's assets was announced in November 2001, the outcome remains uncertain. A significant loss of volume without withdrawal fees could increase the Company's product costs.
- Forward-Looking Risks: Risks include local economic conditions, competitive pressures, ability to maintain margins, and availability of capital.
Investor Verification Checklist
- Store Closure Impact: Verify the timeline and financial impact of the Ventnor store closure and the write-off of remaining assets.
- Wakefern Cooperative Stability: Monitor the resolution of Big V Supermarkets' bankruptcy and its potential effect on supply chain costs and volume for Village Super Market.
- Capital Expenditure Execution: Track progress on the $20 million capital budget, specifically the completion of the Hammonton superstore.
- Comparable Sales Trends: Confirm if the 5.8% comparable sales growth is sustainable given the competitive environment.