Business Context and Reporting Period
Company: Weis Markets, Inc. (WMK)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 25, 2010 (52 weeks)
Business Overview: A family-controlled retailer operating 164 food stores and 7 SuperPetz pet supply stores primarily in Pennsylvania, Maryland, New Jersey, New York, and West Virginia. The company operates as a single reportable segment.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Net Sales | $2,620.4 million | $2,516.2 million |
| Gross Profit | $713.6 million | $678.2 million |
| Gross Margin | 27.2% | 27.0% |
| Operating Income | $105.3 million | $96.4 million |
| Operating Margin | 4.0% | 3.8% |
| Net Income | $68.3 million | $62.8 million |
| Earnings Per Share (Diluted) | $2.54 | $2.33 |
| Operating Cash Flow | $146.7 million | $118.9 million |
| Capital Expenditures | $69.9 million | $81.1 million |
| Working Capital | $233.4 million | $173.2 million |
| Total Assets | $992.1 million | $916.5 million |
| Shareholders' Equity | $728.1 million | $690.8 million |
Debt & Liquidity: The company reported no long-term debt on the balance sheet. Cash and cash equivalents totaled $109.1 million at year-end. The company maintains $15.0 million in outstanding letters of credit.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 4.1% to $2.62 billion, driven by a 1.0% increase in comparable store sales and the full-year impact of the 2009 Giant Markets acquisition (11 stores in NY).
- Profitability: Operating income rose 9.3% and net income increased 8.7%. Gross margin expanded 20 basis points to 27.2% despite a $2.9 million LIFO charge and rising fuel costs.
- Cost Pressures: Diesel fuel costs increased 15.5% year-over-year. Employee-related costs rose 3.9%, and self-insured health care benefits increased 5.9%. Credit/debit card interchange fees rose 15.4% to $17.8 million.
- Store Count: The total store count remained stable at 164 food stores (no new openings or closures in 2010).
Guidance, Outlook, and Risks
Outlook & Capital Plan: Management estimates capital expenditures of approximately $110.0 million for 2011, funding new stores, remodels, and technology upgrades. The company expects moderate wholesale price inflation and continued increases in diesel fuel prices in 2011.
Management Commentary:
- Comparable store sales growth was modest (1.0%) due to a cautious economic environment.
- Successful promotional programs ("Price Freeze" and "Get Grillin' Weis") helped maintain market share.
- Pharmacy sales grew 2.2%, aided by an expanded immunization program.
Risks & Contingencies:
- Competition: Intense price competition from national chains, discounters, and drug stores.
- Cost Volatility: Sensitivity to oil prices (transportation/utilities), rising health care costs, and bank interchange fees.
- Regulatory: Potential impact of the Patient Protection and Affordable Care Act and the Durbin Amendment on debit card fees.
- Self-Insurance: Significant exposure to workers' compensation and medical claims, with potential for material impact from multiple simultaneous claims.
Investor Verification Checklist
- Comparable Store Sales: Verify the 1.0% growth rate given the change in calculation methodology noted in Q2 2010.
- Margin Sustainability: Assess the ability to maintain 27.2% gross margins amidst rising fuel, labor, and healthcare costs.
- Capital Allocation: Review the $110 million 2011 capital plan against cash flow generation to ensure funding without external debt.
- Regulatory Exposure: Monitor the implementation of the Durbin Amendment and its potential effect on the $17.8 million interchange fee expense.
- Family Control: Note that the Weis family owns approximately 65% of voting power, influencing corporate governance and strategic direction.