VILLAGE SUPER MARKET, INC. OVERVIEW
On
The supermarket industry is highly competitive and characterized by narrow profit margins. The Company competes directly with multiple retail formats, both in-store and online, including national, regional and local supermarket chains as well as warehouse clubs, supercenters, drug stores, discount general merchandise stores, fast food chains, restaurants, dollar stores and convenience stores. Village competes by using low pricing, providing a superior customer service experience and a broad range of consistently available quality products, including our own brands portfolio. The ShopRite Price Plus preferred customer program enables Village to offer continuity programs, focus on target marketing initiatives and to offer discounts and attach digital coupons directly to a customer's Price Plus card.
The Company's stores, six of which are owned, average 55,000 total square feet.
These larger store sizes enable the Company's stores to provide a "one-stop"
shopping experience and to feature expanded higher margin specialty departments
such as an onsite bakery, an expanded delicatessen, a variety of natural and
organic foods, ethnic and international foods, prepared foods and pharmacies.
Many of our stores emphasize a
Online grocery ordering for in-store pick up or home delivery through ShopRite from Home is available in all of our ShopRite stores. Customers can browse our circular, create and edit shopping lists and use ShopRite from Home through shoprite.com or the ShopRite app. Additionally, the ShopRite and Fairway Order Express apps enable customers to pre-order deli, catering, specialty occasion cakes and other items. Online ordering for home delivery through third party services is available in all stores.
We consider a variety of indicators to evaluate our performance, such as same store sales; percentage of total sales by department (mix); shrink; departmental gross profit percentage; sales per labor hour; units per labor hour; and hourly labor rates.
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RESULTS OF OPERATIONS
The following table sets forth the major components of the Consolidated Statements of Operations as a percentage of sales:
13 Weeks Ended
October 30, 2021 October 24, 2020
Sales 100.00 % 100.00 %
Cost of sales 71.64 71.85
Gross profit 28.36 28.15
Operating and administrative expense 24.54 25.37
Depreciation and amortization 1.68 1.78
Operating income 2.14 1.00
Interest expense (0.20) (0.20)
Interest income 0.20 0.18
Income before taxes 2.14 0.98
Income taxes 0.66 0.29
Net income 1.48 % 0.69 %
Sales. Sales were
Food inflation and increased
Gross Profit. Gross profit as a percentage of sales increased .21% in the 13
weeks ended
Operating and Administrative Expense. Operating and administrative expense as
a percentage of sales decreased .83% in the 13 weeks ended
Depreciation and Amortization. Depreciation and amortization expense decreased
in the 13 weeks ended
Interest Expense. Interest expense in the 13 weeks ended
Interest Income. Interest income increased in the 13 weeks ended
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Income Taxes. The effective income tax rate was 30.7% in the 13 weeks ended
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those accounting policies that management
believes are important to the portrayal of the Company's financial condition and
results of operations. These policies require management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain. The Company's
critical accounting policies relating to the impairment of long-lived assets,
goodwill and indefinite-lived intangible assets, accounting for patronage
dividends earned as a stockholder of Wakefern and accounting for pension plans,
are described in the Company's Annual Report on Form 10-K for the year ended
The preparation of financial statements in conformity with
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was
During the 13 weeks ended
We expect capital expenditures to range from
At
Working capital was
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Credit Facility
On
•An unsecured revolving line of credit providing a maximum amount available for
borrowing of
•An unsecured term loan with a maximum loan amount of
•On
The Credit Facility also provides for up to
Based on current trends, the Company believes cash and cash equivalents on hand
at
There have been no other substantial changes as of
OUTLOOK
This Form 10-Q contains certain forward-looking statements about Village's future performance. These statements are based on management's assumptions and beliefs in light of information currently available. Such statements relate to, for example: same store sales; economic conditions; expected pension plan contributions; projected capital expenditures; cash flow requirements; inflation expectations; and legal matters; and are indicated by words such as "will," "expect," "should," "intend," "anticipates," "believes" and similar words or phrases. The Company cautions the reader that there is no assurance that actual results or business conditions will not differ materially from the results expressed, suggested or implied by such forward-looking statements. The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof.
•Due to continued uncertainties in the extent and duration of the COVID-19 pandemic and its impact on our business, we will not provide same store sales guidance for fiscal 2022.
•We expect capital expenditures to range from
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Garage store, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.
•The Board's current intention is to continue to pay quarterly dividends in 2022
at the most recent rate of
•We believe cash and cash equivalents on hand, operating cash flow and the Company's Credit Facility will be adequate to meet anticipated requirements for working capital, capital expenditures and debt payments for the foreseeable future.
•We expect our effective income tax rate in fiscal 2022 to be in the range of 30.5% - 31.5%.
•We expect approximately
Various uncertainties and other factors could cause actual results to differ from the forward-looking statements contained in this report. These include:
•The Company operates in and around one of the epicenters of the COVID-19 health crisis. The Company is classified as an essential business and has remained open to serve our customers and the communities in which we operate. The continuing impact on our business, including the length and impact of stay-at-home orders and/or regional quarantines, labor shortages and employment trends, disruptions to supply chains, higher operating costs, the form and impact of economic stimulus and general overall economic instability, is uncertain at this time and could have a material adverse effect on our business, results of operations, financial condition and cash flows. Furthermore, the impact of the COVID-19 health crisis may exacerbate other risks and uncertainties included herein, which could have a material effect on the Company.
•The Fairway acquisition involves a number of risks, uncertainties and
challenges, including under-performance relative to our expectations, additional
capital requirements, unforeseen expenses or delays, imprecise assumptions or
our inability to achieve projected cost savings or other synergies, competitive
factors in the marketplace and difficulties integrating the business, including
merging company cultures, cultivating brand strategy, expansion of food
production and conforming the acquired company's technology, standards,
processes, procedures and controls. Sales and operating profits have
underperformed compared to initial expectations due primarily to residential
population migration out of
•The supermarket business is highly competitive and characterized by narrow profit margins. Results of operations may be materially adversely impacted by competitive pricing and promotional programs, industry consolidation and competitor store openings. Village competes directly with multiple retail formats both in-store and online, including national, regional and local supermarket chains as well as warehouse clubs, supercenters, drug stores, discount general merchandise stores, fast food chains, restaurants, dollar stores and convenience stores. Some of these competitors have greater financial resources, lower merchandise acquisition costs and lower operating expenses than we do.
•The Company's stores are concentrated in
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•Village purchases substantially all of its merchandise from Wakefern. In addition, Wakefern provides the Company with support services in numerous areas including advertising, liability and property insurance, supplies, certain equipment purchasing, coupon processing, certain financial accounting applications, retail technology support, and other store services. Further, Village receives patronage dividends and other product incentives from Wakefern and also has demand deposits and notes receivable due from Wakefern.
Any material change in Wakefern's method of operation or a termination or
material modification of Village's relationship with Wakefern could have an
adverse impact on the conduct of the Company's business and could involve
additional expense for Village. The failure of any Wakefern member to fulfill
its obligations to Wakefern or a member's insolvency or withdrawal from Wakefern
could result in increased costs to the Company. Additionally, an adverse change
in Wakefern's results of operations or solvency could have an adverse effect on
Village's results of operations.
•Approximately 89% of our employees are covered by collective bargaining
agreements. Any work stoppages could have an adverse impact on our financial
results. If we are unable to control health care and pension costs provided for
in the collective bargaining agreements, we may experience increased operating
costs.
•The Company could be adversely affected if consumers lose confidence in the
safety and quality of the food supply chain. The real or perceived sale of
contaminated food products by us could result in a loss of consumer confidence
and product liability claims, which could have a material adverse effect on our
sales and operations.
•Certain of the multi-employer plans to which we contribute are underfunded. As
a result, we expect that contributions to these plans may increase.
Additionally, the benefit levels and related items will be issues in the
negotiation of our collective bargaining agreements. Under current law, an
employer that withdraws or partially withdraws from a multi-employer pension
plan may incur a withdrawal liability to the plan, which represents the portion
of the plan's underfunding that is allocable to the withdrawing employer under
very complex actuarial and allocation rules. The failure of a withdrawing
employer to fund these obligations can impact remaining employers. The amount of
any increase or decrease in our required contributions to these multi-employer
pension plans will depend upon the outcome of collective bargaining, actions
taken by trustees who manage the plans, government regulations, withdrawals by
other participating employers and the actual return on assets held in the plans,
among other factors.
•The Company uses a combination of insurance and self-insurance to provide for
potential liability for workers' compensation, automobile and general liability,
property, director and officers' liability, and certain employee health care
benefits. Any projection of losses is subject to a high degree of variability.
Changes in legal claims, trends and interpretations, variability in inflation
rates, changes in the nature and method of claims settlement, benefit level
changes due to changes in applicable laws, and insolvency of insurance carriers
could all affect our financial condition, results of operations, or cash flows.
•Our long-lived assets, primarily store property, equipment and fixtures, are
subject to periodic testing for impairment. Failure of our asset groups to
achieve sufficient levels of cash flow could result in impairment charges on
long-lived assets.
•Our goodwill and indefinite-lived intangible assets are tested at the end of
each fiscal year, or more frequently if circumstances dictate, for impairment.
Failure of acquired businesses to achieve their forecasted expectations could
result in impairment charges to goodwill and indefinite-lived intangible assets.
•Our effective tax rate may be impacted by the results of tax examinations and
changes in tax laws.
•Wakefern provides all members of the cooperative with information system
support that enables us to effectively manage our business data, customer
transactions, ordering, communications and other business processes. These
information systems are subject to damage or interruption from power outages,
computer or telecommunications failures, computer viruses and related malicious
software, catastrophic weather events, or human error. Any material interruption
of our or Wakefern's information systems could have a material adverse impact on
our results of operations.
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Due to the nature of our business, personal information about our customers, vendors and associates is received and stored in these information systems. In addition, confidential information is transmitted through our ShopRite from Home online business at shoprite.com and through the ShopRite app. Unauthorized parties may attempt to access information stored in or to sabotage or disrupt these systems. Wakefern and the Company maintain substantial security measures to prevent and detect unauthorized access to such information, including utilizing third-party service providers for monitoring our networks, security reviews, and other functions. It is possible that computer hackers, cyber terrorists and others may be able to defeat the security measures in place at the Company, Wakefern or those of third-party service providers. Any breach of these security measures and loss of confidential information, which could be undetected for a period of time, could damage our reputation with customers, vendors and associates, cause Wakefern and Village to incur significant costs to protect any customers, vendors and associates whose personal data was compromised, cause us to make changes to our information systems and could result in government enforcement actions and litigation against Wakefern and/or Village from outside parties. Any such breach could have a material adverse impact on our operations, consolidated financial condition, results of operations, and liquidity if the related costs to Wakefern and Village are not covered or are in excess of carried insurance policies. In addition, a security breach could require Wakefern and Village to devote significant management resources to address problems created by the security breach and restore our reputation.
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RELATED PARTY TRANSACTIONS
See note 5 to the unaudited consolidated financial statements for information on related party transactions.
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