Weis Markets, Inc. 10-Q Summary
Business Context and Reporting Period
Weis Markets, Inc. operates 197 supermarkets in Pennsylvania and six surrounding states, with approximately 24,000 associates. The company reports one operating segment and sells grocery, pharmacy, fuel, manufacturing and related products. This unaudited Form 10-Q covers the 13 weeks ended March 26, 2022, compared with March 27, 2021.
Financial Performance and Position
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $1.104 billion | $1.006 billion | 9.7% |
| Gross profit | $293.7 million | $267.4 million | 9.8% |
| Gross margin | 26.6% | 26.6% | Flat |
| Operating income | $41.4 million | $31.8 million | 30.1% |
| Operating margin | 3.8% | 3.2% | Up 0.6 percentage points |
| Net income | $31.4 million | $24.3 million | 29.4% |
| Net margin | 2.8% | 2.4% | Up 0.4 percentage points |
| Diluted EPS | $1.17 | $0.90 | 30.0% |
| Operating cash flow | $34.5 million | $14.9 million | Up $19.5 million |
Comparable-store sales increased 9.4%, or 7.6% excluding fuel. Sales benefited from retail price inflation, higher fuel prices and performance in grocery, pharmacy and other categories. Grocery represented 85.3% of sales, pharmacy 9.4%, fuel 5.1% and manufacturing 0.2%.
Cash and cash equivalents were $93.1 million at March 26, 2022, compared with $86.0 million at December 25, 2021. Marketable securities totaled $198.8 million, and total current assets were $678.6 million. Total liabilities were $659.5 million and shareholders’ equity was $1.237 billion.
The company generated $34.5 million from operations, used $18.8 million in investing activities and paid $8.6 million in dividends, resulting in a $7.0 million increase in cash during the quarter. Capital expenditures were $18.8 million. The company’s unsecured revolving credit facility has a $30.0 million principal limit, with an additional discretionary amount of up to $70.0 million; availability was $25.3 million after $4.7 million of letters of credit. The filing does not clearly state the amount of any outstanding revolver borrowings.
Material Changes Versus the Prior Comparable Period
- Sales increased 9.7%, while comparable-store sales rose 9.4% including fuel and 7.6% excluding fuel.
- Operating income increased 30.1%, supported by sales leverage and lower operating expenses as a percentage of sales. O, G&A declined to 22.8% of sales from 23.4%.
- Gross margin remained 26.6%, despite higher product costs. Non-cash LIFO inventory expense increased to $1.7 million from $0.3 million.
- Investment income and interest expense changed from $1.6 million of income to $0.9 million of expense, primarily reflecting losses in SERP investments and equity securities.
- Operating cash flow more than doubled, while capital expenditures decreased by $18.3 million from the prior-year quarter.
- Marketable securities declined by approximately $7.0 million from year-end, and accumulated other comprehensive income decreased from $1.7 million to a $3.4 million loss, reflecting unrealized marketable-securities losses.
- Weis 2 Go Online sales decreased 22% year over year but increased 148% compared with the first 13 weeks of 2020.
Guidance, Outlook, Risks and Unusual Items
Management plans to invest approximately $150 million in its 2022 capital expansion program, including stores, remodels, technology, distribution facilities and transportation. Management expects operating cash flow and available credit to fund working capital, capital expenditures, acquisitions and dividends. Capital spending has been affected by limited availability of raw materials and equipment.
The company expects overall product costs to increase because of food-industry inflationary pressures. Management also cited higher gasoline prices, supply-chain constraints, competitive pressures, labor and utility costs, and continuing uncertainty related to COVID-19. The filing provides no formal earnings or sales guidance.
The board declared a quarterly dividend of $0.32 per share payable May 23, 2022. Future dividends remain subject to quarterly board approval and the company’s results, financial condition and other factors.
Other identified risks include cybersecurity and data privacy, third-party and supply-chain risks, legal and regulatory matters, investment-market volatility, and reputational and infrastructure risks. 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.
Investor Verification Priorities
- Verify whether sales growth is sustainable after separating price inflation, fuel-price effects and pandemic-related comparisons from underlying volume growth.
- Monitor gross margin and LIFO expense as merchandise costs and inflation continue to rise.
- Confirm the company’s actual revolver borrowings, letters of-credit requirements and liquidity relative to the planned $150 million capital program.
- Assess the effect of supply-chain, labor, utility and equipment constraints on store remodels and capital spending.
- Track investment and SERP volatility, including unrealized losses that affected reported earnings and comprehensive income.
- Evaluate dividend sustainability and the company’s remaining authorization to repurchase up to 752,468 shares.