Village Super Market, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2023, the 13 weeks ended October 29, 2022. Comparisons are with the 13 weeks ended October 30, 2021 unless stated otherwise. Financial statement amounts are unaudited; dollar amounts below are in millions unless indicated.
Business context
Village operated 34 supermarkets under the ShopRite and Fairway banners and four Gourmet Garage stores. It is the second-largest member of Wakefern, its principal supplier. During the period, the Pelham, New York store was converted from Fairway to ShopRite and remodeled; the West Village Gourmet Garage opened in April 2022.
Results and financial position
| Metric | Q1 FY2023 | Prior-year quarter |
|---|---|---|
| Sales | $519.7 | $494.2 |
| Gross profit / margin | $149.3 / 28.73% | $140.2 / 28.36% |
| Operating income / margin | $15.2 / 2.92% | $10.6 / 2.14% |
| Income before taxes | $16.1 | $10.6 |
| Net income / net margin | $11.1 / 2.13% | $7.3 / 1.48% |
| Operating cash flow | $22.0 | $7.9 |
| Capital expenditures | $9.8 | $13.3 |
Sales grew 5.2%; same-store sales rose 4.3%, primarily due to retail price inflation, with contributions from the new Gourmet Garage and the Pelham conversion. Net income increased 51%. Gross margin improved 37 basis points, while operating and administrative expense declined from 24.54% to 24.16% of sales. Interest income nearly doubled to $2.0 million, mainly reflecting higher rates and increased Wakefern deposits and notes; interest expense rose to $1.1 million.
Basic/diluted earnings per share were $0.85/$0.76 for Class A and $0.55/$0.55 for Class B, compared with $0.56/$0.50 and $0.37/$0.37, respectively.
Cash and cash equivalents were $119.2 million at October 29, versus $134.8 million at July 30, 2022. Working capital was $31.1 million and the current ratio was 1.18, compared with $79.8 million and 1.50 at fiscal year-end; management attributed much of the decline to Wakefern notes being reinvested as long-term receivables. Operating cash flow increased year over year, partly due to working-capital timing. Investing cash use was $42.0 million, including net investment in Wakefern notes and a real estate partnership; cash declined $15.6 million overall.
Debt excluding lease obligations totaled $81.7 million, including $8.9 million current; operating and finance lease obligations totaled approximately $320.9 million. A $10.0 million unsecured term loan was issued in September. The company reported $67.7 million available on its $75.0 million revolving line and compliance with credit covenants. Cash and cash equivalents include $95.4 million of demand deposits at Wakefern.
Changes, outlook, and risks
- Management attributed improved gross margin to higher departmental margins, lower Wakefern warehouse assessment charges, favorable product mix and lower promotions, partly offset by higher LIFO charges and lower Wakefern patronage dividends and rebates. Lower labor, benefits and supply costs reduced operating expenses as a percentage of sales; wage-rate increases were a partial offset.
- Fiscal 2023 outlook: same-store sales growth of 1%–3%; capital expenditures of approximately $70 million; effective tax rate of 31%–32%. The Board’s current intention is to maintain quarterly dividends at $0.25 per Class A share and $0.1625 per Class B share. Management believes cash, operating cash flow and credit availability should meet foreseeable needs.
- Planned spending includes three replacement stores expected to open in fiscal 2024, major and smaller remodels, the Vineland shopping-center purchase, and technology and store upgrades. Village expects to fund its 30% share of the Old Bridge retail-center project costs, estimated at $15–$20 million over two to three years; future lease obligations for the project are disclosed as $18.9 million in MD&A.
- Key risks cited include intense competition and thin margins; inflation, labor availability and costs, supply-chain disruption and changing consumer demand; dependence on Wakefern for merchandise, services and deposits/notes; Fairway integration and performance; collective-bargaining and multi-employer pension costs; food safety; cyber and information-system disruptions; and asset impairment. Management said routine litigation is not expected to materially affect the company.
- Unusual prior-period context: the company terminated one defined-benefit pension plan in April 2022 and recorded a $12.3 million pretax settlement charge then; no related obligation or plan assets remained at quarter-end. This charge was not recorded in the reported quarter.
Important facts for investors to verify
- How much sales growth reflects price inflation versus underlying volume, and whether the 1%–3% same-store sales outlook remains achievable.
- Whether gross-margin improvement and expense savings persist amid inflation, wage increases and competitive pricing.
- Wakefern exposure: demand deposits, notes receivable, supplier dependence, patronage dividends and the terms/prepayment features of the notes.
- Execution, timing and total funding needs for the $70 million capital program and Old Bridge project, alongside debt service and dividends.
- Potential effects of Fairway performance, labor and pension obligations, and other risks identified by management; forward-looking statements are not guarantees of results.