Weis Markets, Inc. 10-Q Summary
Business Context and Reporting Period
Weis Markets, Inc. operates 197 conventional supermarkets in Pennsylvania and six surrounding states, with approximately 24,000 associates. The company self-distributes approximately 63% of products and operates three manufacturing facilities. This unaudited Form 10-Q covers the 13 and 26 weeks ended June 25, 2022, compared with June 26, 2021.
Financial Performance and Position
| Metric | 13 Weeks Ended June 25, 2022 | Year-over-Year Change | 26 Weeks Ended June 25, 2022 | Year-over-Year Change |
|---|---|---|---|---|
| Net sales | $1.135 billion | 8.4% | $2.239 billion | 9.0% |
| Gross profit | $292.2 million | 3.9% | $585.9 million | 6.8% |
| Gross margin | 25.7% | Down 1.1 pts | 26.2% | Down 0.5 pts |
| Income from operations | $48.4 million | 6.2% | $89.8 million | 16.1% |
| Operating margin | 4.3% | Flat | 4.0% | Up 0.2 pts |
| Net income | $36.3 million | 8.3% | $67.7 million | 17.2% |
| Diluted EPS | $1.35 | 8.9% | $2.52 | 17.2% |
Comparable-store sales increased 8.4% for the quarter and 8.9% for the first half, including fuel. Excluding fuel, comparable-store sales increased 6.0% and 6.8%, respectively. Fuel sales benefited from substantially higher gasoline prices. Grocery represented 83.9% of quarterly sales and 84.5% of first-half sales.
Net cash provided by operating activities was $84.4 million, down from $99.8 million in the prior-year period. Capital expenditures were $53.4 million, compared with $77.8 million, while net cash used in investing activities was $82.5 million. Dividends paid were $17.2 million. Cash and cash equivalents declined to $70.7 million from $86.0 million at year-end 2021.
Liquidity included $229.4 million of marketable securities and $25.3 million of availability under an unsecured revolving credit facility, net of $4.7 million of letters of credit. The facility has a $30.0 million aggregate principal limit, an additional discretionary amount of up to $70.0 million, and matures September 1, 2024. The filing reports no material long-term debt balance and only $16 thousand of interest paid on long-term debt during the first half.
At June 25, 2022, total assets were $1.926 billion, total liabilities were $663.3 million, and shareholders’ equity was $1.263 billion. Operating lease liabilities totaled $198.7 million, including current and noncurrent amounts.
Material Changes Versus the Prior Comparable Period
- Sales growth reflected retail price inflation in grocery, fuel and fresh products, with fuel sales increasing to $129.2 million for the first half from $78.2 million.
- Gross margin declined because of higher product costs and a greater mix of lower-margin pharmacy and fuel sales.
- Non-cash LIFO inventory valuation expense increased to $4.9 million from $0.9 million in the first half.
- Operating expense leverage improved: operating, general and administrative expenses were 22.2% of sales versus 22.9% in the prior-year first half.
- Investment income and interest expense shifted to a $1.9 million net expense from $3.8 million of income, principally due to investment losses in the supplemental executive retirement plan and marketable securities.
- Other income shifted to $3.6 million from a $2.6 million expense, partly offsetting the investment-related decline.
- Operating cash flow decreased primarily because inflation increased inventory investment and related product costs.
- Weis 2 Go Online sales decreased 28% year over year in the first half but remained 9.7% above the comparable 2020 period. Curbside pickup was available at 188 locations, Shipt delivery at 176 locations, and DoorDash delivery at 189 locations.
Guidance, Outlook, Risks and Unusual Items
Management planned approximately $125 million of capital investment for 2022. It expects operating cash flow and available credit to fund working capital, capital expansion, acquisitions, debt requirements and dividends. Limited availability of raw materials and equipment was delaying remodels, supply-chain and information-technology upgrades, and smaller store improvements.
Management expects overall product costs to increase because of food-retail inflation, but stated that it cannot precisely quantify the effects of inflation or deflation because of changes in product mix, customer buying patterns and competition. The company also cited competitive, supply-chain, third-party, cybersecurity, data-privacy, pandemic, legal and regulatory risks.
The board declared a quarterly dividend of $0.32 per share payable August 8, 2022. Future dividends remain subject to quarterly board approval and the company’s results, financial condition and other relevant factors. The company had authorization remaining to repurchase 752,468 shares, although no repurchases were reported during the period.
Available-for-sale marketable securities had $9.2 million of gross unrealized losses at quarter-end, contributing to accumulated other comprehensive loss of $5.4 million. Management stated that no material subsequent events or material changes in market risk occurred, and that disclosure controls were effective.
Important Facts for Investors to Verify
- Whether food-cost inflation and the higher LIFO expense continue to pressure gross margins.
- Whether fuel-price-driven sales growth persists after fuel prices normalize.
- The sustainability of operating cash flow given elevated inventory balances and working-capital needs.
- Progress and spending against the approximately $125 million 2022 capital expansion plan amid supply constraints.
- The valuation, maturity profile and unrealized losses of the $229.4 million marketable-securities portfolio.
- Future dividend decisions and any use of the remaining share-repurchase authorization.
- Whether digital-ordering sales recover from the reported 28% year-over-year decline.