Village Super Market, Inc. — Form 10-Q Summary
Reporting period: Third quarter and first 39 weeks of fiscal 2015, ended April 25, 2015. Financial amounts are in thousands of dollars unless otherwise stated. Village operates 29 ShopRite supermarkets in New Jersey, Maryland, and northeastern Pennsylvania and is a member of Wakefern Food Corporation.
Financial performance
| Metric | 13 weeks ended Apr. 25, 2015 | 13 weeks ended Apr. 26, 2014 | 39 weeks ended Apr. 25, 2015 | 39 weeks ended Apr. 26, 2014 |
|---|---|---|---|---|
| Sales | $387,100 | $372,511 | $1,178,035 | $1,121,798 |
| Gross profit | $107,098 | $100,437 | $321,027 | $299,501 |
| Gross margin | 27.67% | 26.96% | 27.25% | 26.70% |
| Operating income | $10,574 | $6,397 | $31,147 | $18,503 |
| Net income (loss) | $13,206 | $3,188 | $23,688 | $(825) |
| Operating cash flow | Not presented separately | Not presented separately | $7,524 | $35,845 |
Third-quarter sales grew 3.9%; same-store sales increased 2.2%. Nine-month sales rose 5.0%, with same-store sales up 2.0%. Operating margin increased to 2.72% from 1.72% in the quarter and to 2.64% from 1.65% year to date. Diluted EPS was $0.93 for Class A and $0.68 for Class B in the quarter; year-to-date diluted EPS was $1.68 and $1.22, respectively.
Reported earnings include a tax benefit from settling New Jersey tax disputes: $7,293 in the quarter and $6,452 for the nine-month period, net of related interest and penalties accrued before settlement. Management states that excluding specified tax, insurance, lease-closure, and store pre-opening items, net income increased 50% in the quarter and 38% year to date versus the comparable periods.
Cash, debt, and liquidity
- At April 25, 2015, cash and cash equivalents were $58,579, down from $77,352 at July 26, 2014. Cash fell by $18,773 during the first nine months.
- Operating cash flow was $7,524, compared with $35,845 a year earlier. Management attributed the decline primarily to the $33,000 New Jersey tax settlement and timing of payables.
- Investing activities used $18,087, including $17,264 of capital expenditures; financing activities used $8,210, including $9,412 of dividends.
- Capital and financing lease obligations and Wakefern notes payable totaled about $45,087, versus $45,909 at fiscal year-end. The filing reports no separate conventional bank debt balance.
- Working capital was $37,933, compared with $16,782 at July 26, 2014; the current ratio was 1.4 to 1 versus 1.1 to 1.
- The company held $41,421 of notes receivable from Wakefern and had $33,926 in Wakefern demand deposits. These balances and the company’s supplier relationship are related-party exposures.
Material changes, outlook, and risks
- Improved sales and gross margin, as well as lower operating and administrative expense as a percentage of sales, supported higher operating income. Margin gains reflected lower promotional spending, improved departmental margins, and lower Wakefern warehouse assessment charges.
- Village paid $33,000 in March 2015 to settle New Jersey tax disputes covering fiscal years 2000–2014. The company expects the net cash outflow, after federal tax benefit, to be $21,000. The settlement reversed remaining tax reserves in excess of the settlement amount.
- The company wrote off $2,270 of remaining estimated Superstorm Sandy insurance receivables in the first quarter after a court ruling favored the insurer. It had collected $2,643 of the $4,913 previously recorded recovery; further recovery was considered not probable.
- Management expects fiscal 2015 same-store sales growth of 1.5%–2.5%, modest retail price inflation, and capital expenditures of approximately $25,000, including the Stirling store expansion and remodel. The Board’s current intention is to maintain quarterly dividends at $0.25 per Class A share and $0.1625 per Class B share.
- Excluding the third-quarter settlement benefit and related accrued interest and penalties, management expects a fiscal 2015 effective tax rate of 41.5%–42.5%. It expects operating costs to be affected by increases in areas including medical and pension costs, and expects pension-plan contributions of approximately $6,000 in fiscal 2015.
- Management believes available cash and operating cash flow will cover foreseeable working-capital, capital-expenditure, and debt-payment needs. Key disclosed risks include intense competition and narrow grocery margins; geographic concentration in New Jersey; weaker-than-typical Maryland store performance; dependence on Wakefern; labor agreements covering approximately 91% of employees; pension-plan underfunding; food-safety exposure; and information-system and cybersecurity risks.
- Other litigation is described as ordinary-course and, in management’s view, not expected to materially affect financial position, results, or liquidity. The filing says there were no material changes to disclosure controls and procedures were effective.
Important facts for investors to verify
- Separate recurring operating performance from the New Jersey tax-settlement benefit and other unusual items when assessing reported earnings.
- Track operating cash flow and cash balances after the settlement, planned store remodeling, and expected pension contributions.
- Review same-store sales trends, store-level performance in Maryland, and whether the stated fiscal 2015 sales outlook is achieved.
- Assess ongoing exposure to Wakefern, including notes receivable, demand deposits, supplier dependence, and patronage dividends.
- Monitor pension and labor costs, and any developments in the Sandy insurance recovery or other contingencies.