Village Super Market, Inc. — Fiscal 2024 First-Quarter 10-Q
Reporting period: 13 weeks ended October 28, 2023; comparisons are with the 13 weeks ended October 29, 2022. Financial amounts are in thousands of dollars, except per-share data. Village operates ShopRite and Fairway supermarkets and Gourmet Garage markets and is a major member of Wakefern, its principal supplier.
Financial results and liquidity
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Sales | $536,354 | $519,689 | +3.2% |
| Gross profit | $152,948 | $149,285 | +2.5% |
| Operating income | $14,150 | $15,176 | -6.8% |
| Net income | $11,585 | $11,081 | +4.5% |
| Net income per share | Class A basic/diluted: $0.87/$0.78; Class B: $0.56/$0.56 | Class A: $0.85/$0.76; Class B: $0.55/$0.55 | Higher for both classes |
| Operating cash flow | $18,379 | $22,019 | Down $3,640 |
- Margins: Gross margin was 28.52%, down from 28.73%; operating margin was 2.64%, down from 2.92%; net margin was 2.16%, up from 2.13%.
- Cash and working capital: Cash and equivalents were $134,773 at October 28, 2023, down from $140,910 at fiscal year-end. Working capital was $66,275, with a 1.36 current ratio.
- Cash uses: Capital expenditures were $13,773; dividends $3,350; debt principal payments $2,698; share repurchases $782; real estate partnership investment $1,813; and net investment in Wakefern notes $2,139.
- Debt and credit: Debt excluding lease obligations totaled $79,409, including $9,370 current and $70,039 long-term. The $75,000 revolving facility had $67,664 available; the company reported compliance with its covenants. Lease obligations were separately reported, including $283,157 in operating lease liabilities.
- Wakefern exposure: The company held $96,348 of notes receivable from Wakefern and had $116,520 of demand deposits invested there. Interest income rose to $3,825 from $1,968, primarily reflecting higher rates and larger Wakefern balances.
Material changes and management commentary
- Same-store sales increased 2.0%, primarily due to retail price inflation; sales also benefited from the remodeled and converted Pelham, New York store. Pharmacy sales increased to $20,211 from $17,169.
- Gross margin declined mainly because of increased promotional spending, higher Wakefern warehouse assessment charges, and unfavorable product mix; improved departmental margins, particularly from commissary operations, partly offset these pressures.
- Operating and administrative expense rose as a share of sales, reflecting higher repair and maintenance, security, and digital-sales fees, partly offset by lower labor and fringe-benefit costs.
- Net income increased 5% as rounded by management, supported by sales growth and higher interest income; operating income declined. Operating cash flow fell mainly because of working-capital timing, particularly tax payments.
- Village closed an 8,400-square-foot Gourmet Garage location on November 1, 2023; management said the closure and its operating results were not material.
Outlook, risks, and contingencies
- Fiscal 2024 same-store sales growth expectation: 1.0%–3.0%. The company budgeted $85,000 for capital expenditures, including the Old Bridge replacement store, two replacement stores planned for fiscal 2025, possible real estate purchases, remodels, and technology and facility upgrades.
- The board’s current intention is to continue quarterly dividends at $0.25 per Class A share and $0.1625 per Class B share. Expected fiscal 2024 effective tax rate: 31.0%–32.0%.
- Management believes cash, operating cash flow, and credit-facility availability will cover foreseeable liquidity needs. The Old Bridge retail-center project involves a 30% interest; Village estimated its share of project costs at $15,000–$20,000 over two to three years.
- Key risks include intense competition and narrow margins; inflation, interest rates, and regional economic conditions; reliance on Wakefern for merchandise and services; labor relations and multi-employer pension costs; food safety; insurance and self-insured claims; asset impairment; tax uncertainty; and cybersecurity or information-system disruption. About 92% of employees are covered by collective bargaining agreements.
- Management said routine litigation is not expected to materially affect financial position, results, or liquidity. The New Markets Tax Credit arrangement remains subject to potential recapture during its compliance period; management does not anticipate recapture and expects a $1,728 net benefit if Wells Fargo exercises its put option in December 2024.
Important facts for investors to verify
- Whether sales growth and the 1%–3% same-store outlook are sustainable after accounting for inflation, and whether promotional and supplier costs continue to pressure gross margin.
- The return, timing, and funding requirements for the $85,000 capital-expenditure plan and replacement-store projects.
- Wakefern concentration and counterparty exposure, including the notes and demand deposits held there and the February 2024 note maturity.
- Debt, lease commitments, revolving-facility availability, covenant compliance, and the sensitivity of borrowing costs despite the company’s interest-rate swaps.
- The assumptions behind expected dividends, the New Markets Tax Credit benefit, and management’s liquidity outlook.