Ingles Markets, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended September 26, 2020 (52 weeks). This is an annual report, not a standalone fourth-quarter filing. Ingles operated 197 supermarkets across six Southeastern states, alongside fluid dairy and shopping-center rental operations.
Financial performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $4.611 billion | $4.202 billion |
| Gross profit / margin | $1.198 billion / 26.0% | $1.022 billion / 24.3% |
| Operating income / margin | $280.9 million / 6.1% | $152.2 million / 3.6% |
| Net income / margin | $178.6 million / 3.9% | $81.6 million / 1.9% |
| Diluted EPS, Class A / Class B | $8.82 / $8.24 | $4.03 / $3.76 |
| Cash from operations | $350.1 million | $211.5 million |
| Capital expenditures | $122.8 million | $161.8 million |
| Total debt | $605.5 million | $852.2 million |
| Cash and cash equivalents | $6.9 million | $42.1 million |
Net sales increased about 9.7% year over year. Retail comparable sales excluding gasoline rose 15.1%; transactions excluding gasoline fell 3.1%, while average transaction size rose 15.8%. Grocery, non-foods and perishables sales increased; gasoline sales fell as gallons sold declined 6.3% and prices per gallon declined 15.6%.
Operating and administrative expenses rose 5.5% to $921.7 million, but declined as a share of sales to 20.0% from 20.8%. Pandemic-related labor, cleaning and safety costs contributed to higher expenses. The company reported $350.1 million of operating cash flow, supported in part by higher income and increased accounts payable. Cash used in financing was $268.0 million, mainly reflecting debt repayments and redemptions.
At year-end, current assets were $470.2 million and current liabilities were $323.8 million. Ingles had a $175 million revolving credit facility, with $38.9 million outstanding and $126.7 million reported as available after outstanding letters of credit. The company reported compliance with debt covenants.
Changes, outlook and risks
- COVID-19 drove results: Stay-at-home measures, school closures and reduced restaurant dining increased grocery demand. Gross margin benefited from less discounting and a higher mix of meal replacements. Management cautioned that the effect on future traffic, sales and profitability was uncertain.
- Debt reduction and unusual charge: Ingles redeemed or refinanced $405 million of 5.75% senior notes during FY2020, leaving $295 million outstanding. Debt fell by about $246.7 million year over year; the company recorded $7.1 million of early-extinguishment costs. Interest expense declined to $40.5 million from $47.4 million.
- Capital plans: Management forecast FY2021 capital expenditures of approximately $120–$160 million, primarily for store improvements, equipment and technology, and expected ongoing annual net capital expenditures of approximately $100–$160 million. It anticipated new stores, continued remodeling, and additional fuel stations and pharmacies.
- Other items: Ingles paid $15 million in extra associate appreciation bonuses during the pandemic. Real estate income declined as some shopping-center tenants deferred rent. The company began live testing a click-and-collect service. It adopted lease accounting in FY2020, recognizing operating lease right-of-use assets and liabilities; adoption did not materially affect net income or cash flows.
- Principal risks: The pandemic’s duration and economic effects, competition including online and nontraditional retailers, labor and operating-cost pressures, fuel-price volatility, supply-chain disruption, cybersecurity and technology risks, regional concentration, and environmental obligations. The company is self-insured for several risks; reserves were $34.1 million. Management said pending legal matters were not expected to be material.
- Governance and audit: Robert P. Ingle II held approximately 76% of combined voting power. The auditor issued unqualified opinions on the financial statements and internal controls; vendor allowances were identified as a critical audit matter.
Investor verification priorities
- Assess how much FY2020 sales and margin strength persisted after pandemic-related restrictions eased, including comparable sales, transaction trends and product mix.
- Verify cash generation, working-capital movements and remaining liquidity, including revolving-facility availability and debt maturities.
- Review the economics of the debt refinancing, remaining variable-rate exposure and interest-rate swap liabilities.
- Monitor tenant rent collections, self-insurance reserves, vendor allowances and the effect of lower vendor advertising support.
- Track execution and returns on planned store remodeling, new stores, click-and-collect investments and FY2021 capital expenditures.