Bridgford Foods Corporation — Q1 FY2023 Form 10-Q
Business context and period: The filing covers the 12 weeks ended January 20, 2023, compared with the 12 weeks ended January 21, 2022. Bridgford operates Frozen Food Products and Snack Food Products segments. Financial statement amounts below are in thousands of dollars, except per-share data.
Financial performance
| Metric | Q1 FY2023 | Prior-year period | Change |
|---|---|---|---|
| Net sales | $61,622 | $64,086 | Down 3.8% |
| Gross margin | $17,066; 28.0% of sales | $16,393; 25.6% of sales | Margin up 2.4 percentage points |
| Operating income | $1,344 | $1,680 | Down 20.0% |
| Net income | $932 | $307 | Up $625 |
| Basic EPS | $0.10 | $0.03 | — |
| Net cash used in operating activities | $2,627 | $1,337 | $1,290 more cash used |
Sales fell as a 5.0% decline in unit volume, higher returns, and lower promotional activity outweighed a 3.0% increase in selling price per pound. Cost of products sold fell 6.6%, supporting improved gross margin; lower meat commodity costs were a major benefit, partly offset by higher frozen-segment costs. SG&A increased 7.2% to $15,794, including higher bad-debt provision, outside storage, wages and other expenses. Net income also benefited from lower other expense, notably a favorable change in cash surrender value of life insurance versus the prior-year loss.
Segments and balance sheet
- Frozen Food Products: Sales rose 16.4% to $14,399, but operating income declined to $11 from $429. Higher volume and prices were offset by higher product costs and SG&A.
- Snack Food Products: Sales fell 8.7% to $47,223, principally on lower direct-store-delivery volume; operating income increased to $1,333 from $1,251 as product costs declined.
- At January 20, 2023, cash was $12,992, total assets $169,611, and shareholders’ equity $127,257. Working capital was $67,004, as reported by management.
- Total debt was $4,666, consisting of equipment notes; $1,099 was current and $3,567 long-term. The $15,000 revolving facility had no borrowings and was scheduled to mature August 31, 2023. Lease obligations are additional to reported debt.
Cash flow, outlook, and risks
Operating cash use reflected working-capital outflows, including a $4,563 reduction in accounts payable and a $1,376 reduction in other current liabilities, partly offset by lower inventory. Investing activities used $187, including $259 of capital expenditures; financing activities used $527. Cash declined $3,341 during the period.
Management gave no specific earnings or sales guidance. It expects inflationary pressures, including labor, freight, and materials costs, to continue through the rest of FY2023, and said resources should cover operating needs and capital expenditures for the remainder of the year. Management also expected sufficient liquidity for at least the next 12 months, citing operating cash generation, available credit, and expected tax refunds. The filing reports $5,799 of income tax refunds due and notes that $5,117 had been received in July 2022.
- Consumer price sensitivity and inflation may pressure demand; the company may not be able to raise prices enough or quickly enough to offset input-cost increases. It does not hedge commodity exposure.
- Customer concentration is significant: Walmart represented 30.8% of sales and 35.2% of receivables; Dollar General represented 13.0% of sales and 24.0% of receivables.
- COVID-related effects were described as minimal in the period, but future effects on demand, supply chains, staffing, and production remain uncertain. Ordinary-course claims and legal actions were not expected by management to have a material adverse effect.
- The company was in compliance with its Wells Fargo loan covenants. One covenant requires quarterly after-tax income of at least $500.
- Disclosure controls were deemed ineffective at quarter-end because of a previously reported material weakness involving failure to timely communicate a lease-term change for accounting. Management had implemented remediation steps but said the weakness would not be considered remediated until controls operated effectively for a sufficient period; it expected completion before FY2023 year-end.
- After quarter-end, the Hogshed Ventures lease was extended by one year, through June 30, 2024; terms were still being worked out in the filing.
Key facts for investors to verify
- Whether lower Snack Food Products volume persists and whether Frozen Food Products can sustain its sales growth and improve segment profitability.
- Whether gross-margin improvement from lower commodity costs can offset inflation in labor, freight, and other costs.
- Cash conversion and working-capital trends, including the effects of reduced payables and the end of accelerated Walmart receivable payments.
- Availability and renewal or replacement of the revolving credit facility, which was scheduled to mature August 31, 2023.
- Progress and testing results for remediation of the material weakness in internal controls.
- Customer concentration, inventory valuation reserves, and the amount and timing of remaining tax refunds; the filing text does not provide a clear value for state net operating loss carryforwards.