Weis Markets, Inc. Fiscal 2021 Form 10-K Summary
Business Context and Reporting Period
Weis Markets, Inc. operates conventional supermarkets primarily in Pennsylvania and six surrounding states. The company reported one operating segment and operated 196 stores at December 25, 2021; one additional store opened afterward, bringing the current total to 197. The fiscal year ended December 25, 2021 and comprised 52 weeks. The filing is an annual report, not a standalone fourth-quarter report.
- Product categories include grocery, fresh foods, pharmacy, fuel, manufacturing and general merchandise.
- Approximately 24,000 associates were employed, 97% of whom were paid hourly wages.
- The Weis family owned approximately 65% of the outstanding shares and voting power.
Financial Performance and Key Metrics
| ($ in thousands, except per-share data) | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $4,224,417 | $4,112,601 | 2.7% |
| Gross profit | $1,115,707 | $1,100,434 | 1.4% |
| Gross margin | 26.4% | 26.8% | Down 40 bps |
| Operating income | $146,711 | $163,178 | Down 10.1% |
| Operating margin | 3.5% | 4.0% | Down 50 bps |
| Income before taxes | $148,307 | $163,679 | Down 9.4% |
| Net income | $108,849 | $118,917 | Down 8.5% |
| Net margin | 2.6% | 2.9% | Down 30 bps |
| Basic and diluted EPS | $4.05 | $4.42 | Down 8.4% |
| Operating cash flow | $227,709 | $277,990 | Down $50,281 |
| Capital expenditures | $151,800 | $130,991 | Up 15.9% |
- Comparable-store sales increased 1.7% including fuel and 0.2% excluding fuel. Two-year stacked comparable-store sales increased 18.1% including fuel and 17.7% excluding fuel.
- Pharmacy revenue increased to $399.1 million from $356.6 million, and fuel revenue increased to $183.6 million from $117.8 million. Grocery revenue was substantially flat at $3.63 billion.
- Gross margin was pressured by a greater mix of lower-margin pharmacy and fuel sales, higher product and supply-chain costs, pharmacy industry practices and a $4.0 million unfavorable non-cash LIFO inventory adjustment.
- Operating, general and administrative expenses increased 3.4% to $969.0 million. Outside services and information-technology costs increased by $11.6 million, while employee expense increased by $5.5 million.
- The effective tax rate decreased to 26.6% from 27.3%, compared with 23.3% in 2019.
Liquidity, Capital Resources and Debt
- Cash and cash equivalents were $86.0 million at year-end, down from $136.6 million. Marketable securities increased to $205.7 million from $111.9 million, resulting in cash and marketable securities of approximately $291.8 million.
- Total assets were $1.91 billion and shareholders’ equity was $1.22 billion at December 25, 2021.
- The company had no outstanding borrowing under its revolving credit agreement since the second quarter of 2018. The amended facility matures September 1, 2024 and provides $30.0 million of committed capacity plus an additional discretionary $70.0 million. Availability at year-end was $25.3 million after $4.7 million of letters of credit.
- Operating cash flow exceeded capital expenditures by approximately $75.9 million before dividends. Investing cash flow was negative $244.7 million, driven by capital spending and purchases of marketable securities.
- The company paid $33.6 million in dividends, or $1.25 per share, and increased its quarterly dividend from $0.31 to $0.32 per share in the fourth quarter. Future dividends remain subject to board approval.
- Management planned approximately $150 million of capital investment for 2022, including new stores, remodels, technology, distribution facilities and transportation assets.
- Operating lease commitments totaled $227.1 million, with $46.7 million due within one year. The filing reports no material off-balance-sheet arrangements.
Material Changes, Outlook and Unusual Items
- Sales continued to benefit from pandemic-related demand, increased pharmacy prescriptions, COVID-19 vaccinations and higher fuel prices, but management cautioned that these benefits may not recur.
- Profitability declined despite sales growth because of lower-margin sales mix, inflationary product and supply-chain costs, pharmacy margin pressure and the unfavorable LIFO adjustment.
- The company expanded digital convenience offerings: Weis 2 Go Online was available at 187 stores and home delivery at 182 locations.
- Management expressed confidence in long-term sales growth and continued to emphasize new stores, remodels, technology, productivity, customer convenience, private-label value and sustainability. No formal earnings or sales guidance was provided.
- COVID-19 remains an uncertainty affecting labor availability, supply chains, customer behavior, regulation, litigation and cybersecurity.
- Other key risks include intense price competition, food safety, wage and benefit inflation, fuel costs, vendor promotional funding, cybersecurity and data privacy, self-insurance claims, weather, regional economic conditions, regulatory changes, tax exposure and the company’s concentrated geographic footprint.
- Unrecognized tax benefits totaled $10.0 million at year-end, of which $1.7 million would affect the effective tax rate if recognized. Management stated that routine legal proceedings are not expected to have a material adverse effect.
- The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Critical audit matters included state income taxes and retail inventory valuation.
Most Important Facts for Investors to Verify
- Whether pandemic-related pharmacy, grocery and fuel demand can be sustained as consumer behavior normalizes.
- Whether gross-margin pressure from inflation, supply-chain costs, pharmacy economics, fuel mix and LIFO adjustments persists.
- Execution and returns from the planned approximately $150 million 2022 capital program and ongoing store remodels and digital investments.
- The liquidity and risk profile of the $205.7 million investment portfolio, including interest-rate, credit and equity-market exposure.
- Future labor, healthcare, fuel, lease and self-insurance costs, which could materially affect operating margins.
- The effect of intense supermarket, nontraditional retail and online competition on pricing, market share and vendor allowances.
- Potential changes in COVID-19 conditions, food-safety requirements, tax rules, cybersecurity threats and other regulatory obligations.
- The implications of approximately 65% family ownership for shareholder voting power, governance and potential corporate transactions.