Weis Markets, Inc. Form 10-Q Summary
Business Context and Reporting Period
Weis Markets operates 197 supermarkets with more than 24,500 associates across Pennsylvania and six surrounding states. This unaudited Form 10-Q covers the 13 and 26 weeks ended June 27, 2020, compared with June 29, 2019. The company operated as a single reportable segment. Its stores remained open as an essential business during the COVID-19 pandemic.
Financial Results and Position
| Metric | 13 Weeks Ended June 27, 2020 | 13 Weeks Ended June 29, 2019 | 26 Weeks Ended June 27, 2020 | 26 Weeks Ended June 29, 2019 |
|---|---|---|---|---|
| Net sales | $1,098.7 million | $888.0 million | $2,084.5 million | $1,764.7 million |
| Gross profit | $292.9 million | $236.7 million | $557.0 million | $466.2 million |
| Gross margin | 26.7% | 26.7% | 26.7% | 26.4% |
| Operating income | $56.0 million | $26.3 million | $93.4 million | $44.1 million |
| Operating margin | 5.1% | 3.0% | 4.5% | 2.5% |
| Net income | $41.5 million | $20.5 million | $68.2 million | $34.8 million |
| Diluted EPS | $1.54 | $0.76 | $2.53 | $1.29 |
- Second-quarter sales increased 23.7%; year-to-date sales increased 18.1%. Comparable-store sales increased 24.1% in the quarter and 18.5% year to date, including fuel.
- Sales excluding fuel increased 25.8% in the quarter and 19.1% year to date. Grocery sales represented 89.9% of quarterly sales, compared with 86.6% in the prior-year quarter.
- Operating, general and administrative expenses increased 12.6% in the quarter and 9.8% year to date, but declined as a percentage of sales to 21.6% and 22.2%, respectively.
- Net cash provided by operating activities was $139.1 million for the first 26 weeks, up from $77.6 million in the prior-year period.
- Capital expenditures were $49.7 million, compared with $44.3 million in the prior-year period. Investing cash outflow was $80.6 million.
- Cash and cash equivalents totaled $108.7 million at June 27, 2020, compared with $66.9 million at December 28, 2019. Marketable securities totaled $97.3 million, up from $63.5 million.
- Total assets were $1.739 billion and shareholders’ equity was $1.111 billion at quarter-end.
- The company reported no obligation outstanding under its credit agreement since the second quarter of 2018. The unsecured revolving facility matures September 1, 2022, provides for $30.0 million of principal capacity plus a potential additional $70.0 million, and had $24.0 million available after $6.0 million of letters of credit.
- Quarterly dividends were $0.31 per share; $16.7 million was paid during the first 26 weeks. The board approved another $0.31 per-share dividend payable August 10, 2020.
Material Changes Versus the Prior Comparable Period
- COVID-19-related demand, store closures elsewhere, government stimulus payments and increased market share materially benefited sales and profitability.
- Net income increased 102.5% in the quarter and 96.0% year to date; diluted EPS increased 102.6% and 96.1%, respectively.
- Comparable-store sales excluding fuel increased 26.4% in the quarter and 19.7% year to date.
- E-commerce sales increased 141% during the first 26 weeks. Curbside pickup was available at 177 locations and Shipt home delivery at 175 locations.
- Employee hiring increased approximately 300%, and hourly store associates received a temporary additional $2 per hour. Wage expense increased $18.2 million in the quarter and $24.1 million year to date.
- Lower gasoline prices reduced fuel sales, while grocery demand increased. Fuel sales declined to $23.1 million in the quarter from $33.3 million.
- The company recorded $3.3 million of non-cash LIFO inventory expense year to date, compared with $0.4 million in 2019, and expects a greater annual LIFO expense increase because of anticipated product-cost inflation.
- Investment income and interest expense changed from income of $4.0 million year to date in 2019 to a loss of $1.0 million in 2020, primarily reflecting approximately $2.0 million of unrealized equity-security losses.
Guidance, Outlook, Risks and Unusual Items
- Management expects similar sales and profit trends into the beginning of the next quarter but cannot determine the longer-term effect of the pandemic, future related expenses or post-pandemic customer behavior.
- Management plans approximately $86 million of capital investment in 2020, subject to governmental restrictions and pandemic-related shutdown mandates.
- Management expects operating cash flow and available credit to fund working capital, debt requirements, capital investment, acquisitions and dividends.
- Key pandemic risks include employee illness or quarantine, supply-chain disruption, litigation, changing regulations, shifts in customer purchasing methods and increased cybersecurity threats.
- Approximately 51% of open store facilities are leased, with lease expirations extending through 2035. Operating lease liabilities totaled $211.0 million at June 27, 2020.
- The company’s effective tax rate increased to 26.5% in the quarter and 26.3% year to date, compared with 24.0% and 24.1% in the comparable periods.
- Management stated that disclosure controls were effective and that no material change occurred in internal control over financial reporting during the quarter.
Facts Investors Should Verify
- Whether pandemic-driven sales, market-share gains, stimulus effects and reduced competition persist or reverse.
- The impact of temporary wage increases, hiring, supply-chain costs and future COVID-19-related expenses on margins.
- Actual full-year capital expenditures relative to the approximately $86 million plan and any effect of government restrictions.
- Future LIFO expense, product-cost inflation and changes in grocery, pharmacy and fuel sales mix.
- Marketable-securities performance, including equity-market volatility and the company’s ability or willingness to liquidate investments.
- Availability and terms of the revolving credit facility, lease obligations, dividend continuation and any potential share repurchases.