Weis Markets, Inc. — 2023 Q3 Form 10-Q Summary
Business context and reporting period
Weis Markets operates 197 supermarkets in Pennsylvania and six surrounding states, with approximately 23,000 associates. The company reports one operating segment and sells grocery, pharmacy, fuel, manufacturing, and related products. This unaudited filing covers the 13 and 39 weeks ended September 30, 2023, compared with the periods ended September 24, 2022.
Key financial metrics
| Metric | 13 weeks ended September 30, 2023 | 39 weeks ended September 30, 2023 |
|---|---|---|
| Net sales | $1.160 billion | $3.484 billion |
| Gross profit | $285.7 million | $870.6 million |
| Gross margin | 24.6% | 25.0% |
| Income from operations | $29.7 million | $107.9 million |
| Operating margin | 2.6% | 3.1% |
| Net income | $23.2 million | $83.3 million |
| Net margin | 2.0% | 2.4% |
| Diluted EPS | $0.86 | $3.10 |
| Cash dividends per share | $0.34 | $1.02 |
- Operating cash flow was $43.1 million for the first 39 weeks, compared with $142.3 million in the prior-year period.
- Capital expenditures were $75.6 million; net cash used in investing activities was $109.4 million.
- Cash and cash equivalents were $64.3 million at September 30, 2023, compared with $158.0 million at December 31, 2022.
- Marketable securities totaled $219.7 million, and total current assets were $719.0 million.
- Total liabilities were $576.5 million and shareholders’ equity was $1.358 billion.
- The company reported no material borrowings under its revolving facility in the filing text. The unsecured facility has a $30.0 million principal limit plus a discretionary $70.0 million amount; availability was $25.6 million after $4.4 million of letters of credit.
Material changes versus the prior comparable period
- Third-quarter sales increased 0.8%; 39-week sales increased 2.8%. Comparable-store sales increased 0.8% for the quarter and 2.5% year to date, or 1.1% and 3.1%, respectively, excluding fuel.
- Gross profit declined 0.7% in the quarter and 0.3% year to date. Gross margin decreased 40 basis points to 24.6% in the quarter and 80 basis points to 25.0% year to date.
- Operating income decreased 11.8% in the quarter and 12.6% year to date, reflecting gross-margin pressure and higher fixed and other expenses.
- Net income decreased 19.0% in the quarter and 13.5% year to date. Diluted EPS declined to $0.86 from $1.07 for the quarter and to $3.10 from $3.58 year to date.
- The effective tax rate increased to 27.1% year to date from 22.9% in the prior-year period, contributing to the net-income decline.
- Investment income and interest expense improved to income of $1.4 million in the quarter and $7.7 million year to date, compared with losses of $1.5 million and $3.4 million, respectively, in the prior-year periods.
- Operating cash flow fell primarily because of lower earnings and settlement of working-capital obligations. Accounts payable and other liabilities reduced operating cash flow by $89.4 million year to date.
- Dividends paid increased to $27.4 million from $25.8 million year to date. The October board declaration maintained the quarterly dividend at $0.34 per share.
Guidance, outlook, risks, contingencies, and unusual items
- Management plans to invest more than $100 million in 2023 capital expenditures, including delayed projects affected by labor and supply-chain disruptions.
- Management expects cash generated from operations, available credit, and potentially liquidated investments to fund working capital, capital expenditures, acquisitions, debt requirements, and dividends.
- Management anticipates overall product costs will increase, although individual commodities may experience inflation or deflation. Gross margin was pressured by higher fresh-meat and pharmacy costs and a greater mix of lower-margin pharmacy sales.
- Non-cash LIFO inventory valuation expense was $4.3 million year to date, compared with $11.8 million in the prior-year period.
- The company’s investment portfolio was $219.7 million at quarter end and included corporate and municipal bonds, commercial paper, and equity securities. The portfolio had $10.2 million of gross unrealized losses on corporate and municipal bonds.
- Approximately 49% of open store facilities are leased, with operating lease obligations extending through 2036.
- Key identified risks include intense competition, inflation and consumer behavior, supply-chain and third-party risks, labor and operating costs, cybersecurity and data privacy, investment and infrastructure risks, legal and regulatory matters, and pandemic-related disruptions.
- Management stated that there were no material subsequent events requiring disclosure, no material changes in market risk, and no material changes to internal control over financial reporting. Disclosure controls were considered effective.
Important facts for investors to verify
- Verify the sustainability of sales growth and comparable-store performance as food inflation moderates and fuel prices fluctuate.
- Assess whether gross-margin pressure from product costs, pharmacy mix, and competitive pricing persists.
- Review the sharp decline in operating cash flow and the timing of working-capital recoveries.
- Confirm the scope, timing, and funding of the planned 2023 capital expenditure program exceeding $100 million.
- Monitor liquidity, marketable-security values, letters of credit, and availability under the revolving credit facility.
- Evaluate the effect of the 27.1% effective tax rate and investment gains or losses on future earnings comparability.
- Confirm future dividend declarations, which remain subject to quarterly board approval and operating and financial conditions.