Weis Markets, Inc. 2023 First-Quarter 10-Q Summary
Business Context and Reporting Period
Weis Markets operates 197 conventional supermarkets in Pennsylvania and six surrounding states, with more than 23,000 associates. The company reports one operating segment and offers grocery, pharmacy, fuel, manufacturing, and related products and services. This unaudited Form 10-Q covers the 13 weeks ended April 1, 2023, compared with the 13 weeks ended March 26, 2022.
Financial Performance and Position
| Metric | 13 Weeks Ended April 1, 2023 | 13 Weeks Ended March 26, 2022 | Change |
|---|---|---|---|
| Net sales | $1,145.0 million | $1,104.1 million | 3.7% |
| Gross profit | $285.8 million | $293.7 million | (2.7%) |
| Gross margin | 25.0% | 26.6% | (160 bps) |
| Operating income | $32.6 million | $41.4 million | (21.2%) |
| Operating margin | 2.8% | 3.8% | (100 bps) |
| Net income | $25.8 million | $31.4 million | (17.8%) |
| Diluted EPS | $0.96 | $1.17 | (17.9%) |
| Operating cash flow | $7.9 million | $34.5 million | $(26.5) million |
| Capital expenditures | $17.7 million | $18.8 million | $(1.1) million |
Cash and cash equivalents were $113.6 million at April 1, 2023, compared with $158.0 million at December 31, 2022. Marketable securities totaled $214.2 million, and total assets were $1.945 billion. Total liabilities were $624.5 million and shareholders’ equity was $1.320 billion.
The company had an unsecured revolving credit facility with a $30.0 million principal limit, plus an additional discretionary amount of up to $70.0 million. Availability was $25.5 million after $4.5 million of letters of credit. The facility matures September 1, 2024. Interest expense related to long-term debt was $8 thousand for the quarter; the filing does not indicate material drawn borrowings.
The company paid $9.1 million in dividends, or $0.34 per share, during the quarter. The April board declaration provided for another $0.34-per-share dividend payable May 22, 2023. Basic and diluted weighted-average shares remained 26.9 million.
Material Changes Versus the Prior Comparable Period
- Sales increased 3.7%, supported by retail price inflation and higher comparable-store sales. Comparable-store sales increased 3.1%, or 3.6% excluding fuel; two-year stacked comparable-store sales increased 12.5%.
- Grocery sales increased to $969.8 million from $941.6 million, and pharmacy sales increased to $118.6 million from $103.3 million. Fuel sales declined to $53.7 million from $56.2 million.
- Gross margin declined because of higher product costs, particularly in fresh meats and pharmacy, and a greater mix of lower-margin pharmacy sales. Non-cash LIFO expense was $1.6 million versus $1.7 million.
- Operating, general and administrative expenses increased only 0.4% to $253.2 million and declined to 22.1% of sales from 22.8%, partially offsetting gross-margin pressure.
- Investment income and interest expense changed to net income of $3.8 million from a net expense of $0.9 million. The 2023 amount included a $2.5 million investment gain and $1.3 million of SERP investment income.
- Other income changed to expense of $1.3 million from income of $1.5 million, primarily reflecting changes associated with the supplemental executive retirement plan liability.
- Operating cash flow fell substantially, primarily because of lower net income and the settlement of working-capital obligations. Investing cash use increased to $43.2 million, driven largely by net purchases of marketable securities.
Outlook, Commentary, Risks, and Unusual Items
Management plans to invest approximately $160 million in 2023 capital expenditures, including carryover projects delayed by labor and supply-chain disruptions. Management expects operating cash flow and credit availability to fund working capital, capital expenditures, acquisitions, debt requirements, and dividends.
Management expects overall product costs to increase based on recent food-retail inflation indicators, although it cannot precisely isolate inflation and deflation effects because of product-mix, customer-behavior, and competitive changes. The company remains focused on long-term sales growth but identifies competition, supply-chain disruption, labor and equipment availability, cybersecurity and data privacy, pandemics, legal and regulatory matters, and other external risks.
Approximately 49% of open-store facilities are leased, with operating lease obligations extending through 2036. The company maintains a $214.2 million investment portfolio that management expects to retain but could liquidate if needed. The filing reports no material subsequent events, no material change in market risk, and no changes to significant accounting policies. Disclosure controls and internal control over financial reporting were assessed as effective.
Important Facts for Investors to Verify
- Whether gross-margin pressure from fresh-meat and pharmacy costs persists and whether anticipated product-cost inflation affects profitability.
- Whether operating cash flow recovers after the quarter’s working-capital settlements and supports the planned approximately $160 million capital program.
- The composition, credit quality, maturity profile, and unrealized losses of the $214.2 million marketable-securities portfolio.
- Availability and renewal terms of the revolving credit facility before its September 2024 maturity, including the $4.5 million of letters of credit.
- Execution of delayed remodel, technology, distribution, and store-expansion projects amid labor and supply-chain constraints.
- Sustainability of quarterly dividends, which remain subject to quarterly board approval and operating and financial conditions.