Weis Markets, Inc. — Form 10-Q Summary
Reporting period: Fiscal quarter ended July 1, 2023, comprising 13 weeks and 26 weeks year to date. The filing was submitted August 10, 2023. Weis Markets operated 197 stores in Pennsylvania and six surrounding states and reported one operating segment.
Financial performance and position
| Metric | 13 weeks ended July 1, 2023 | Year to date | Comparable change |
|---|---|---|---|
| Net sales | $1.179 billion | $2.324 billion | +3.8% / +3.8% |
| Gross profit | $299.0 million | $584.8 million | +2.3% / -0.2% |
| Gross margin | 25.4% | 25.2% | Down 0.3 / 1.0 percentage points |
| Operating income | $45.6 million | $78.2 million | -5.7% / -12.9% |
| Operating margin | 3.9% | 3.4% | Down 0.4 / 0.6 percentage points |
| Net income | $34.3 million | $60.1 million | -5.5% / -11.2% |
| Diluted EPS | $1.27 | $2.23 | -5.9% / -11.5% |
Comparable-store sales increased 3.5% for the quarter and 3.3% year to date, or 4.8% and 4.2%, respectively, excluding fuel. Grocery represented 83.6% of quarterly sales, pharmacy 11.0%, fuel 5.2%, and manufacturing 0.2%.
Net cash provided by operating activities was $80.4 million year to date, down from $84.4 million in the prior-year period. Capital expenditures were $49.9 million, dividends paid were $18.3 million, and net cash used in investing activities was $80.8 million. Cash and cash equivalents declined from $158.0 million at December 31, 2022 to $139.3 million at July 1, 2023.
At July 1, 2023, total assets were $2.0 billion, including $217.9 million of marketable securities. Total liabilities were $628.3 million and shareholders’ equity was $1.345 billion. The company had $25.5 million of availability under its $30.0 million unsecured revolving credit facility, net of $4.5 million in letters of credit. The facility matures September 1, 2024 and includes an additional discretionary amount of up to $70.0 million. The filing does not indicate material borrowings outstanding.
Material changes versus the prior comparable period
- Sales increased, supported by retail price inflation in grocery, pharmacy, and fresh products; lower fuel prices restrained fuel revenue.
- Gross margin contracted because of higher product costs in fresh meats and pharmacy and a greater mix of lower-margin pharmacy sales.
- Operating expenses increased in dollars, but declined as a percentage of sales to 21.5% for the quarter and 21.8% year to date, compared with 21.5% and 22.2%, respectively.
- Investment income improved to $2.5 million for the quarter and $6.3 million year to date, compared with losses of $1.0 million and $1.9 million in the prior-year periods. The improvement included favorable SERP investment results.
- Other income declined to an expense of $0.9 million for the quarter and $2.2 million year to date, compared with income of $2.1 million and $3.6 million, respectively.
- The effective tax rate increased to 27.4% for the quarter and 27.1% year to date, compared with 26.7% and 26.1%.
Outlook, risks, and unusual items
- Management plans approximately $150 million of capital expenditures in 2023, including delayed carryover projects affected by labor and supply-chain disruptions.
- Management expects overall product costs to increase based on recent food-retail inflation indicators, while noting that inflation and deflation effects cannot be measured precisely because of merchandise mix, customer behavior, and competition.
- The company expects operating cash flow and available credit to fund working capital, capital expenditures, acquisitions, debt requirements, and dividends.
- The board declared a quarterly dividend of $0.34 per share payable August 21, 2023. Future dividends remain subject to quarterly board approval and financial condition.
- Key risks include intense competition, inflation and margin pressure, supply-chain constraints, labor availability, cybersecurity and data privacy, pandemics, legal and regulatory matters, and investment and infrastructure risks.
- Non-cash LIFO valuation expense was $2.9 million year to date, compared with $4.9 million in the prior-year period. Approximately 49% of open store facilities were leased, with lease expirations extending through 2036.
- Management reported no material subsequent events, no material changes in market risk, and effective disclosure controls as of July 1, 2023.
Investor verification points
- Verify whether sales growth can continue without comparable levels of inflation and whether gross-margin pressure from fresh meats and pharmacy persists.
- Assess the ability to execute the planned approximately $150 million capital program amid labor, equipment, and supply-chain constraints.
- Monitor cash generation, marketable-security balances, letters of credit, and the September 2024 revolving-credit maturity.
- Evaluate the sustainability of investment income and SERP-related gains, which may fluctuate and are not core operating earnings.
- Review dividend continuation, competitive pricing activity, and the company’s exposure to labor, cybersecurity, supply-chain, and regulatory risks.