Weis Markets, Inc. — Form 10-Q Summary
Business context and reporting period
Weis Markets operates 197 supermarkets in Pennsylvania and six surrounding states, with grocery, pharmacy, fuel, manufacturing and related offerings. The filing covers the 13 and 39 weeks ended September 24, 2022, compared with the periods ended September 25, 2021. The company reported one operating segment and had 26.9 million shares outstanding as of November 3, 2022.
Key financial metrics
| Metric | 13 weeks ended September 24, 2022 | Year-over-year | 39 weeks ended September 24, 2022 | Year-over-year |
|---|---|---|---|---|
| Net sales | $1,150.6 million | 8.2% | $3,389.9 million | 8.7% |
| Gross profit | $287.6 million | 1.6% | $873.5 million | 5.0% |
| Gross margin | 25.0% | Down 1.6 points | 25.8% | Down 0.9 points |
| Income from operations | $33.7 million | Down 13.6% | $123.5 million | 6.1% |
| Operating margin | 2.9% | Down 0.8 points | 3.6% | Down 0.1 point |
| Net income | $28.7 million | 0.5% | $96.3 million | 11.7% |
| Diluted EPS | $1.07 | 0.9% | $3.58 | 11.5% |
Cash flow from operations was $142.3 million for the first 39 weeks, down from $182.1 million in the prior-year period. Capital expenditures were $83.3 million, compared with $118.2 million, and dividends paid were $25.8 million, compared with $25.0 million. Cash and cash equivalents totaled $144.6 million at September 24, 2022, supplemented by $171.1 million of marketable securities.
Total assets were $1.94 billion and shareholders’ equity was $1.28 billion at quarter-end. The company reported no material borrowings under its unsecured revolving facility; availability was $25.5 million after $4.5 million of outstanding letters of credit. The facility has a $30.0 million commitment, with an additional discretionary amount of up to $70.0 million, and matures September 1, 2024.
Material changes versus the prior comparable period
- Comparable-store sales increased 7.9% in the quarter and 8.6% year to date, including fuel; excluding fuel, increases were 6.7% and 6.8%, respectively.
- Sales growth reflected retail price inflation in grocery, fuel and fresh products. Fuel sales increased to $66.4 million in the quarter from $49.3 million and to $195.5 million year to date from $127.5 million.
- Cost of sales grew faster than sales, pressuring gross margins. Management cited higher product costs in fresh meats and pharmacy and a greater mix of lower-margin fuel sales.
- Non-cash LIFO inventory valuation expense was $11.8 million year to date, compared with $2.0 million in the prior-year period.
- Operating, general and administrative expense increased 4.0% in the quarter and 4.9% year to date, but declined as a percentage of sales to 22.1% from 23.0% and 22.9%, respectively.
- Investment income and interest expense shifted to a loss of $1.5 million in the quarter and $3.4 million year to date, versus income of $0.6 million and $4.4 million. The change included losses in equity securities and SERP investments.
- The effective tax rate declined to 14.2% in the quarter and 22.9% year to date, compared with 27.2% and 26.7%. Pennsylvania House Bill 1342 reduced the tax provision by approximately $5.6 million.
- E-commerce sales declined 10.3% year to date to $51.3 million, although they remained 3.3% above the comparable 2020 period.
Guidance, outlook, risks and unusual items
- Management planned approximately $110 million of capital expenditures for 2022. Spending and project execution may be affected by limited availability of raw materials and equipment.
- Management expects overall product costs to continue increasing because of food-retail inflationary pressures, which may further affect gross margins and operating cash flow.
- Management expects operating cash flow and available credit to fund working capital, debt obligations, capital expenditures, acquisitions and dividends.
- The board declared a quarterly dividend of $0.34 per share payable November 21, 2022. Future dividends remain subject to quarterly board approval and financial conditions.
- Key disclosed risks include intense competition, inflation and changing consumer behavior, supply-chain and third-party risks, cybersecurity and data privacy, information-technology infrastructure, legal and regulatory matters, and continuing or residual effects of COVID-19.
- Marketable securities had $11.4 million of gross unrealized losses at September 24, 2022, primarily in corporate and municipal bonds. Accumulated other comprehensive income was negative $7.5 million, principally from these securities.
- The filing states that there were no material subsequent events, no material changes in market risk, and no material changes to internal control over financial reporting.
Most important facts for investors to verify
- Whether food, labor, utility and supply-chain inflation continues to outpace pricing and erode gross margins.
- The sustainability of comparable-store sales growth after adjusting for inflation and elevated fuel prices.
- Whether lower operating cash flow and higher inventory balances affect capital spending, dividends or liquidity.
- The valuation and maturity profile of the $171.1 million investment portfolio, including unrealized losses and equity-security exposure.
- Progress toward the approximately $110 million 2022 capital program given equipment and materials constraints.
- The effect of Pennsylvania tax-law changes on future effective tax rates and cash taxes.