VILLAGE SUPER MARKET INC - Quarter Report: 2013 October (Form 10-Q)

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Large accelerated filer	o		Accelerated filer	x
Non-accelerated filer	o (Do not check if a smaller reporting company)		Smaller reporting company	o

 

 

		December 4, 2013
	Class A Common Stock, No Par Value	9,493,801 Shares
	Class B Common Stock, No Par Value	4,360,998 Shares

 

 

 

 

PART I		PAGE NO.
FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
		Consolidated Condensed Balance Sheets	3
		Consolidated Condensed Statements of Operations	4
		Consolidated Condensed Statements of Comprehensive (Loss) Income	4
		Consolidated Condensed Statements of Cash Flows	5
		Notes to Consolidated Condensed Financial Statements	6-9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		10-15
Item 3.	Quantitative & Qualitative Disclosures about Market Risk		16
Item 4.	Controls and Procedures		16
PART II
OTHER INFORMATION
Item 6.	Exhibits		17
Signatures			17

 

 

 

 

PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements
VILLAGE SUPER MARKET, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in Thousands) (Unaudited)
		October 26, 2013				July 27, 2013
ASSETS
Current assets
Cash and cash equivalents		$	87,460			$	109,571
Merchandise inventories			42,329				41,515
Patronage dividend receivable			15,999				11,810
Note receivable from Wakefern			22,817				22,421
Other current assets			27,402				20,047
Total current assets			196,007				205,364
Property, equipment and fixtures, net			191,020				176,981
Investment in Wakefern			25,012				24,355
Goodwill			12,057				12,057
Other assets			8,396				8,655
		$	432,492			$	427,412
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of capital and financing lease obligations		$	75			$	10
Current portion of notes payable to Wakefern			1,287				600
Accounts payable to Wakefern			55,221				59,465
Accounts payable and accrued expenses			30,930				31,709
Income taxes payable			36,960				19,281
Total current liabilities			124,473				111,065
Capital and financing lease obligations			40,996				41,019
Notes payable to Wakefern			1,571				1,719
Other liabilities			29,621				29,049
Commitments and contingencies
Shareholders' Equity
Class A common stock - no par value, issued 9,859 shares at
October 26, 2013 and 9,440 shares at July 27, 2013			45,589				44,543
Class B common stock - no par value, issued and outstanding
4,361 shares at October 26, 2013 and 4,780 shares
at July 27, 2013			708				776
Retained earnings			201,198				211,109
Accumulated other comprehensive loss			(8,348	)			(8,467	)
Less cost of Class A treasury shares (365 at October 26, 2013
and 375 at July 27, 2013)			(3,316	)			(3,401	)
Total shareholders’ equity			235,831				244,560
		$	432,492			$	427,412
See accompanying Notes to Consolidated Condensed Financial Statements.

VILLAGE SUPER MARKET, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in Thousands except Per Share Amounts) (Unaudited)
		13 Weeks Ended				13 Weeks Ended
		October 26, 2013				October 27, 2012
Sales		$	357,046			$	358,151
Cost of sales			263,340				262,514
Gross profit			93,706				95,637
Operating and administrative expense			82,352				80,256
Depreciation and amortization			5,105				4,909
Operating income			6,249				10,472
Interest expense			(740	)			(1,074	)
Interest income			696				682
Income before income taxes			6,205				10,080
Income taxes			13,036				4,225
Net (loss) income		$	(6,831	)		$	5,855
Net (loss) income per share:
Class A common stock:
Basic		$	(0.55	)		$	0.52
Diluted		$	(0.55	)		$	0.42
Class B common stock:
Basic		$	(0.36	)		$	0.30
Diluted		$	(0.36	)		$	0.30

 

 

 

The following table sets forth the major components of the Consolidated Condensed Statements of Operations as a percentage of sales:

 

 

 
 

·	We expect same store sales to increase from .5% to 2.5% in fiscal 2014.

·

During the last few years, the supermarket industry was impacted by changing consumer behavior due to the weak economy and high unemployment.  Consumers are increasingly cooking meals at home, but spending cautiously by trading down to lower priced items, including private label, and concentrating their buying on sale items.  Management expects these trends to continue in fiscal 2014.

·	We expect modest retail price inflation in fiscal 2014.

·	We have budgeted $35,000 for capital expenditures in fiscal 2014. This amount includes the construction of two replacement stores, one of which began in fiscal 2013.

·	The Board’s current intention is to continue to pay quarterly dividends in 2014 at the most recent rate of $.25 per Class A and $.1625 per Class B share.

·	We believe cash flow from operations and other sources of liquidity 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 2014 to be 45.5% - 46.5%.  Excluding interest and penalties related to unrecognized tax benefits, we expect our effective income tax rate in fiscal 2014 to be 41.5% - 42.5%.

·	We expect operating expenses will be affected by increased costs in certain areas, such as medical and pension costs.

·

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 with national and regional supermarkets, local supermarkets, warehouse club stores, supercenters, drug stores, convenience stores, dollar stores, discount merchandisers, restaurants and other local retailers. 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 New Jersey, with one store in northeastern Pennsylvania and two in Maryland. We are vulnerable to economic downturns in New Jersey in addition to those that may affect the country as a whole. Economic conditions such as inflation, deflation, interest rates, energy costs and unemployment rates may adversely affect our sales and profits.

·

Village acquired two stores in July 2011 in Maryland, a new market for Village where the ShopRite name is less known than in New Jersey. Maryland stores sales, marketing costs and operating performance remain worse than expected as we continue to build market share and brand awareness. If these trends continue, the Company’s results of operations could be materially impacted.

·

Village purchases substantially all of its merchandise from Wakefern. In addition, Wakefern provides the Company with support services in numerous areas including supplies, advertising, liability and property insurance, technology support and other store services. Further, Village receives patronage dividends and other product incentives 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 could have an adverse effect on Village’s results of operations.

·

Approximately 91% 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.

·

Village 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.

·

The Company has rental obligations for several years remaining on the Morris Plains store, which closed in November 2013.  These obligations include base rent of approximately $2.5 million over the remaining lease term.  The Company is also constructing another replacement store expected to open in late fiscal 2014, for which we will also have additional rental obligations remaining on the existing store.  If we are unable to otherwise mitigate the rental obligations, we will record a charge to operating and administrative expense for the remaining base rent obligation, net of estimated sublease income, in the fiscal quarter in which we cease using the respective properties.

·

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 and the actual return on assets held in the plans, among other factors.

·

We provide health benefits to a large number of our employees, primarily through multi-employer health plans.  Effective January 1, 2015, the Patient Protection and Affordable Care Act will impose new mandates on employers that could significantly increase the number of employees receiving benefits and our required contributions to these multi-employer health plans.  We are not able at this time to determine the impact of the law, as it will depend on many factors, including finalization of rules implementing the law, the number of additional employees that we will be required to provide health benefits, and negotiation of collective bargaining agreements, which could be material to our results of operations.

·	Our long-lived assets, primarily stores, 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 effective tax rate may be impacted by the results of tax examinations and changes in tax laws, including the disputes with the state of New Jersey described in note 5 of the consolidated condensed financial statements.

 

 

 

 

 

 

		Village Super Market, Inc.
		Registrant
Date: December 4, 2013		/s/ James Sumas
		James Sumas
		(Chief Executive Officer)
Date: December 4, 2013		/s/ Kevin R. Begley
		Kevin R. Begley
		(Chief Financial Officer)