VILLAGE SUPER MARKET INC - Quarter Report: 2022 January (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. | ||||
For the quarterly period ended January 29, 2022 | |||||
| OR | |||||
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. | ||||
Commission File No. 0-2633 | |||||
VILLAGE SUPER MARKET, INC.
(Exact name of registrant as specified in its charter)
| New Jersey | 22-1576170 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I. R. S. Employer Identification No.) | |||||||
733 Mountain Avenue, Springfield, New Jersey, 07081 | ||||||||
| (Address of principal executive offices) (Zip Code) | ||||||||
| Registrant's telephone number, including area code: | (973) 467-2200 | |||||||
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||
| Class A common stock, no par value | VLGEA | The NASDAQ Stock Market | ||||||
| (Title of Class) | (Trading Symbol) | (Name of exchange on which registered) | ||||||
| Securities registered pursuant to Section 12(g) of the Act: None | ||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12-b2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☒ | |||||||
Non-accelerated filer ☐ (Do not check if a smaller reporting company) | Smaller reporting company ☒ | |||||||
Emerging growth company ☐ | ||||||||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ | ||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒. | ||||||||
| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: | ||||||||
| March 9, 2022 | ||||||||
| Class A Common Stock, No Par Value | 10,251,456 Shares | |||||||
| Class B Common Stock, No Par Value | 4,293,748 Shares | |||||||
VILLAGE SUPER MARKET, INC.
INDEX
| PART I | PAGE NO. | ||||
| FINANCIAL INFORMATION | |||||
| Item 1. Financial Statements (Unaudited) | |||||
| Consolidated Balance Sheets | |||||
| Consolidated Statements of Operations | |||||
| Consolidated Statements of Comprehensive Income | |||||
| Consolidated Statements of Shareholders' Equity | |||||
| Consolidated Statements of Cash Flows | |||||
| Notes to Consolidated Financial Statements | |||||
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | |||||
| Item 3. Quantitative & Qualitative Disclosures about Market Risk | |||||
| Item 4. Controls and Procedures | |||||
| PART II | |||||
| OTHER INFORMATION | |||||
| Item 6. Exhibits | |||||
| Signatures | |||||
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) | |||||||||||
| January 29, 2022 | July 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | 125,897 | $ | 116,314 | |||||||
| Merchandise inventories | 44,250 | 42,633 | |||||||||
| Patronage dividend receivable | 4,912 | 11,860 | |||||||||
| Notes receivable from Wakefern | 27,949 | — | |||||||||
| Income taxes receivable | 8,687 | 5,111 | |||||||||
| Other current assets | 20,509 | 20,398 | |||||||||
| Total current assets | 232,204 | 196,316 | |||||||||
| Property, equipment and fixtures, net | 269,165 | 256,154 | |||||||||
| Operating lease assets | 276,321 | 289,461 | |||||||||
| Notes receivable from Wakefern | 28,536 | 55,295 | |||||||||
| Investment in Wakefern | 33,004 | 33,004 | |||||||||
| Goodwill | 24,190 | 24,190 | |||||||||
| Other assets | 33,890 | 34,584 | |||||||||
| Total assets | $ | 897,310 | $ | 889,004 | |||||||
| LIABILITIES and SHAREHOLDERS' EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Operating lease obligations | $ | 22,161 | $ | 21,627 | |||||||
| Finance lease obligations | 563 | 531 | |||||||||
| Notes payable to Wakefern | 710 | 632 | |||||||||
| Current portion of debt | 7,466 | 6,976 | |||||||||
| Accounts payable to Wakefern | 79,092 | 70,792 | |||||||||
| Accounts payable and accrued expenses | 22,520 | 25,098 | |||||||||
| Accrued wages and benefits | 24,205 | 25,036 | |||||||||
| Income taxes payable | 317 | 1,601 | |||||||||
| Total current liabilities | 157,034 | 152,293 | |||||||||
| Long-term debt | |||||||||||
| Operating lease obligations | 265,215 | 278,135 | |||||||||
| Finance lease obligations | 21,926 | 22,325 | |||||||||
| Notes payable to Wakefern | 2,593 | 2,791 | |||||||||
| Long-term debt | 70,042 | 66,827 | |||||||||
| Total long-term debt | 359,776 | 370,078 | |||||||||
| Pension liabilities | 10,298 | 10,182 | |||||||||
| Other liabilities | 14,946 | 14,978 | |||||||||
| Commitments and contingencies | |||||||||||
| Shareholders' equity | |||||||||||
Preferred stock, no par value: Authorized 10,000 shares, none issued | — | — | |||||||||
Class A common stock, no par value: Authorized 20,000 shares; issued 10,981 shares at January 29, 2022 and 10,978 shares at July 31, 2021 | 71,808 | 70,594 | |||||||||
Class B common stock, no par value: Authorized 20,000 shares; issued and outstanding 4,294 shares at January 29, 2022 and July 31, 2021 | 697 | 697 | |||||||||
| Retained earnings | 304,117 | 293,185 | |||||||||
| Accumulated other comprehensive loss | (7,338) | (9,064) | |||||||||
Less treasury stock, Class A, at cost: 730 shares at January 29, 2022 and 726 shares at July 31, 2021 | (14,028) | (13,939) | |||||||||
| Total shareholders’ equity | 355,256 | 341,473 | |||||||||
| Total liabilities and shareholders’ equity | $ | 897,310 | $ | 889,004 | |||||||
See notes to consolidated financial statements.
3
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) | |||||||||||||||||||||||
| 13 Weeks Ended | 26 Weeks Ended | ||||||||||||||||||||||
| January 29, 2022 | January 23, 2021 | January 29, 2022 | January 23, 2021 | ||||||||||||||||||||
| Sales | $ | 537,408 | $ | 522,818 | $ | 1,031,619 | $ | 1,012,954 | |||||||||||||||
| Cost of sales | 387,797 | 380,973 | 741,829 | 733,146 | |||||||||||||||||||
| Gross profit | 149,611 | 141,845 | 289,790 | 279,808 | |||||||||||||||||||
| Operating and administrative expense | 126,487 | 126,449 | 247,770 | 250,812 | |||||||||||||||||||
| Depreciation and amortization | 8,460 | 8,793 | 16,795 | 17,507 | |||||||||||||||||||
| Operating income | 14,664 | 6,603 | 25,225 | 11,489 | |||||||||||||||||||
| Interest expense | (963) | (982) | (1,932) | (1,969) | |||||||||||||||||||
| Interest income | 905 | 874 | 1,881 | 1,766 | |||||||||||||||||||
| Income before income taxes | 14,606 | 6,495 | 25,174 | 11,286 | |||||||||||||||||||
| Income taxes | 4,477 | 1,940 | 7,717 | 3,370 | |||||||||||||||||||
| Net income | $ | 10,129 | $ | 4,555 | $ | 17,457 | $ | 7,916 | |||||||||||||||
| Net income per share: | |||||||||||||||||||||||
| Class A common stock: | |||||||||||||||||||||||
| Basic | $ | 0.78 | $ | 0.35 | $ | 1.34 | $ | 0.61 | |||||||||||||||
| Diluted | $ | 0.69 | $ | 0.31 | $ | 1.20 | $ | 0.54 | |||||||||||||||
| Class B common stock: | |||||||||||||||||||||||
| Basic | $ | 0.50 | $ | 0.23 | $ | 0.87 | $ | 0.39 | |||||||||||||||
| Diluted | $ | 0.50 | $ | 0.23 | $ | 0.87 | $ | 0.39 | |||||||||||||||
See notes to consolidated financial statements.
4
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) | |||||||||||||||||||||||
| 13 Weeks Ended | 26 Weeks Ended | ||||||||||||||||||||||
| January 29, 2022 | January 23, 2021 | January 29, 2022 | January 23, 2021 | ||||||||||||||||||||
| Net income | $ | 10,129 | $ | 4,555 | $ | 17,457 | $ | 7,916 | |||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||
| Unrealized gains on interest rate swaps, net of tax (1) | 759 | 501 | 1,550 | 1,094 | |||||||||||||||||||
| Amortization of pension actuarial loss, net of tax (2) | 88 | 101 | 176 | 203 | |||||||||||||||||||
| Comprehensive income | $ | 10,976 | $ | 5,157 | $ | 19,183 | $ | 9,213 | |||||||||||||||
(1)Amount is net of tax of $324 and $218 for the 13 weeks January 29, 2022 and January 23, 2021, respectively, and $663 and $479 for the 26 weeks ended January 29, 2022 and January 23, 2021, respectively.
(2)Amounts are net of tax of $38 and $45 for the 13 weeks January 29, 2022 and January 23, 2021, respectively, and $76 and $91 for the 26 weeks ended January 29, 2022 and January 23, 2021, respectively. All amounts are reclassified from accumulated other comprehensive loss to operating and administrative expense.
See notes to consolidated financial statements.
5
| VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands) (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
13 Weeks Ended January 29, 2022 and January 23, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Accumulated Other Comprehensive Income (Loss) | Treasury Stock Class A | Total Shareholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares Issued | Amount | Shares Issued | Amount | Retained Earnings | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
Balance, October 30, 2021 | 10,987 | $ | 71,238 | 4,294 | $ | 697 | $ | 297,249 | $ | (8,185) | 730 | $ | (14,028) | $ | 346,971 | ||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 10,129 | — | — | — | 10,129 | ||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax of $362 | — | — | — | — | — | 847 | — | — | 847 | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | (3,261) | — | — | — | (3,261) | ||||||||||||||||||||||||||||||||||||||||||||
| Restricted shares forfeited | (6) | (56) | — | — | — | — | — | — | (56) | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | 626 | — | — | — | — | — | — | 626 | ||||||||||||||||||||||||||||||||||||||||||||
Balance, January 29, 2022 | 10,981 | $ | 71,808 | 4,294 | $ | 697 | $ | 304,117 | $ | (7,338) | 730 | $ | (14,028) | $ | 355,256 | ||||||||||||||||||||||||||||||||||||||
Balance, October 24, 2020 | 10,988 | $ | 68,695 | 4,294 | $ | 697 | $ | 286,344 | $ | (8,056) | 726 | $ | (13,939) | $ | 333,741 | ||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 4,555 | — | — | — | 4,555 | ||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax of $263 | — | — | — | — | — | 602 | — | — | 602 | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | (3,265) | — | — | — | (3,265) | ||||||||||||||||||||||||||||||||||||||||||||
| Restricted shares forfeited | (3) | (12) | — | — | — | — | — | — | (12) | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | 641 | — | — | — | — | — | — | 641 | ||||||||||||||||||||||||||||||||||||||||||||
Balance, January 23, 2021 | 10,985 | $ | 69,324 | 4,294 | $ | 697 | $ | 287,634 | $ | (7,454) | 726 | $ | (13,939) | $ | 336,262 | ||||||||||||||||||||||||||||||||||||||
26 Weeks Ended January 29, 2022 and January 23, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Class A Common Stock | Class B Common Stock | Accumulated Other Comprehensive Income (Loss) | Treasury Stock Class A | Total Shareholders' Equity | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares Issued | Amount | Shares Issued | Amount | Retained Earnings | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
Balance, July 31, 2021 | 10,978 | $ | 70,594 | 4,294 | $ | 697 | $ | 293,185 | $ | (9,064) | 726 | $ | (13,939) | $ | 341,473 | ||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 17,457 | — | — | — | 17,457 | ||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax of $739 | — | — | — | — | — | 1,726 | — | — | 1,726 | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | (6,525) | — | — | — | (6,525) | ||||||||||||||||||||||||||||||||||||||||||||
| Treasury stock purchases | — | — | — | — | — | — | 4 | (89) | (89) | ||||||||||||||||||||||||||||||||||||||||||||
| Restricted shares forfeited | (6) | (56) | — | — | — | — | — | — | (56) | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | 9 | 1,270 | — | — | — | — | — | — | 1,270 | ||||||||||||||||||||||||||||||||||||||||||||
Balance, January 29, 2022 | 10,981 | $ | 71,808 | 4,294 | $ | 697 | $ | 304,117 | $ | (7,338) | 730 | $ | (14,028) | $ | 355,256 | ||||||||||||||||||||||||||||||||||||||
Balance, July 25, 2020 | 10,985 | $ | 68,072 | 4,294 | $ | 697 | $ | 286,241 | $ | (8,751) | 726 | $ | (13,939) | $ | 332,320 | ||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 7,916 | — | — | — | 7,916 | ||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax of $570 | — | — | — | — | — | 1,297 | — | — | 1,297 | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends | — | — | — | — | (6,523) | — | — | — | (6,523) | ||||||||||||||||||||||||||||||||||||||||||||
| Restricted shares forfeited | (8) | (24) | — | — | — | — | — | — | (24) | ||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | 8 | 1,276 | — | — | — | — | — | — | 1,276 | ||||||||||||||||||||||||||||||||||||||||||||
Balance, January 23, 2021 | 10,985 | $ | 69,324 | 4,294 | $ | 697 | $ | 287,634 | $ | (7,454) | 726 | $ | (13,939) | $ | 336,262 | ||||||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements.
6
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) | ||||||||||||||
| 26 Weeks Ended | ||||||||||||||
| January 29, 2022 | January 23, 2021 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||
| Net income | $ | 17,457 | $ | 7,916 | ||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Depreciation and amortization | 17,549 | 18,222 | ||||||||||||
| Non-cash share-based compensation | 1,214 | 1,252 | ||||||||||||
| Deferred taxes | (1,233) | (1,456) | ||||||||||||
| Provision to value inventories at LIFO | 521 | — | ||||||||||||
| Gain on sale of property, equipment and fixtures | (220) | (84) | ||||||||||||
| Changes in assets and liabilities: | ||||||||||||||
| Merchandise inventories | (2,138) | (4,973) | ||||||||||||
| Patronage dividend receivable | 6,948 | 6,808 | ||||||||||||
| Accounts payable to Wakefern | 7,767 | (2,124) | ||||||||||||
| Accounts payable and accrued expenses | (2,129) | (1,158) | ||||||||||||
| Accrued wages and benefits | (831) | (957) | ||||||||||||
| Income taxes receivable / payable | (4,860) | 3,835 | ||||||||||||
| Other assets and liabilities | 229 | (2,370) | ||||||||||||
| Net cash provided by operating activities | 40,274 | 24,911 | ||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||
| Capital expenditures | (30,483) | (9,958) | ||||||||||||
| Proceeds from the sale of assets | 4,225 | 107 | ||||||||||||
| Investment in notes receivable from Wakefern | (1,190) | (1,141) | ||||||||||||
| Net cash used in investing activities | (27,448) | (10,992) | ||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||
| Proceeds from issuance of long-term debt | 7,350 | 50,000 | ||||||||||||
| Principal payments of long-term debt | (3,975) | (4,091) | ||||||||||||
| Payments on revolving line of credit | — | (50,000) | ||||||||||||
| Debt issuance costs | (4) | (222) | ||||||||||||
| Dividends | (6,525) | (6,523) | ||||||||||||
| Treasury stock purchases, including shares surrendered for withholding taxes | (89) | — | ||||||||||||
| Net cash used in financing activities | (3,243) | (10,836) | ||||||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 9,583 | 3,083 | ||||||||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 116,314 | 111,681 | ||||||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 125,897 | $ | 114,764 | ||||||||||
| SUPPLEMENTAL DISCLOSURES OF CASH PAYMENTS MADE FOR: | ||||||||||||||
| Interest | $ | 1,932 | $ | 1,969 | ||||||||||
| Income taxes | $ | 13,810 | $ | 985 | ||||||||||
| NONCASH SUPPLEMENTAL DISCLOSURES: | ||||||||||||||
| Investment in Wakefern and increase in notes payable to Wakefern | $ | — | $ | 66 | ||||||||||
| Capital expenditures included in accounts payable and accrued expenses | $ | 3,247 | $ | 5,138 | ||||||||||
See notes to consolidated financial statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited)
1. BASIS OF PRESENTATION and ACCOUNTING POLICIES
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly the consolidated financial position as of January 29, 2022 and the consolidated statements of operations, comprehensive income and cash flows for the 13 and 26 weeks ended January 29, 2022 and January 23, 2021 of Village Super Market, Inc. (“Village” or the “Company”).
The significant accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements in the July 31, 2021 Village Super Market, Inc. Annual Report on Form 10-K, which should be read in conjunction with these financial statements. The results of operations for the periods ended January 29, 2022 are not necessarily indicative of the results to be expected for the full year.
Disaggregated Revenues
The following table presents the Company's sales by product categories during each of the periods indicated:
| 13 Weeks Ended | 26 Weeks Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| January 29, 2022 | January 23, 2021 | January 29, 2022 | January 23, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | Amount | % | ||||||||||||||||||||||||||||||||||||||||
| Center Store (1) | $ | 324,362 | 60.3 | % | $ | 321,829 | 61.5 | % | $ | 620,336 | 60.1 | % | $ | 617,769 | 61.0 | % | |||||||||||||||||||||||||||||||
| Fresh (2) | 194,329 | 36.2 | 181,965 | 34.8 | 374,152 | 36.3 | 357,609 | 35.3 | |||||||||||||||||||||||||||||||||||||||
| Pharmacy | 16,756 | 3.1 | 16,671 | 3.2 | 33,604 | 3.3 | 33,103 | 3.3 | |||||||||||||||||||||||||||||||||||||||
| Other (3) | 1,961 | 0.4 | 2,353 | 0.5 | 3,527 | 0.3 | 4,473 | 0.4 | |||||||||||||||||||||||||||||||||||||||
| Total Sales | $ | 537,408 | 100.0 | % | $ | 522,818 | 100.0 | % | $ | 1,031,619 | 100.0 | % | $ | 1,012,954 | 100.0 | % | |||||||||||||||||||||||||||||||
(1) Consists primarily of grocery, dairy, frozen, health and beauty care, general merchandise and liquor.
(2) Consists primarily of produce, meat, deli, seafood, bakery, prepared foods and floral.
(3) Consists primarily of sales related to other income streams, including service fees related to digital sales, gift card and lottery commissions and wholesale sales.
2. MERCHANDISE INVENTORIES
At both January 29, 2022 and July 31, 2021, approximately 62% of merchandise inventories are valued by the LIFO method while the balance is valued by FIFO. If the FIFO method had been used for the entire inventory, inventories would have been $15,842 and $15,321 higher than reported at January 29, 2022 and July 31, 2021, respectively.
3. NET INCOME PER SHARE
The Company has two classes of common stock. Class A common stock is entitled to cash dividends as declared 54% greater than those paid on Class B common stock. Shares of Class B common stock are convertible on a share-for-share basis for Class A common stock at any time.
The Company utilizes the two-class method of computing and presenting net income per share. The two-class method is an earnings allocation formula that calculates basic and diluted net income per share for each class of common stock separately based on dividends declared and participation rights in undistributed earnings. Under the two-class method, Class A common stock is assumed to receive a 54% greater participation in undistributed earnings than Class B common stock, in accordance with the classes' respective dividend rights. Unvested share-based payment awards that contain nonforfeitable rights to dividends are treated as participating securities and therefore included in computing net income per share using the two-class method.
8
Diluted net income per share for Class A common stock is calculated utilizing the if-converted method, which assumes the conversion of all shares of Class B common stock to Class A common stock on a share-for-share basis, as this method is more dilutive than the two-class method. Diluted net income per share for Class B common stock does not assume conversion of Class B common stock to shares of Class A common stock.
The tables below reconcile the numerators and denominators of basic and diluted net income per share for all periods presented.
| 13 Weeks Ended | 26 Weeks Ended | ||||||||||||||||||||||
| January 29, 2022 | January 29, 2022 | ||||||||||||||||||||||
| Class A | Class B | Class A | Class B | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income allocated, basic | $ | 7,666 | $ | 2,165 | $ | 13,204 | $ | 3,732 | |||||||||||||||
| Conversion of Class B to Class A shares | 2,165 | — | 3,732 | — | |||||||||||||||||||
| Net income allocated, diluted | $ | 9,831 | $ | 2,165 | $ | 16,936 | $ | 3,732 | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average shares outstanding, basic | 9,873 | 4,294 | 9,868 | 4,294 | |||||||||||||||||||
| Conversion of Class B to Class A shares | 4,294 | — | 4,294 | — | |||||||||||||||||||
| Weighted average shares outstanding, diluted | 14,167 | 4,294 | 14,162 | 4,294 | |||||||||||||||||||
| 13 Weeks Ended | 26 Weeks Ended | ||||||||||||||||||||||
| January 23, 2021 | January 23, 2021 | ||||||||||||||||||||||
| Class A | Class B | Class A | Class B | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income allocated, basic | $ | 3,437 | $ | 974 | $ | 5,971 | $ | 1,692 | |||||||||||||||
| Conversion of Class B to Class A shares | 974 | — | 1,692 | — | |||||||||||||||||||
| Net income allocated, diluted | $ | 4,411 | $ | 974 | $ | 7,663 | $ | 1,692 | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average shares outstanding, basic | 9,850 | 4,294 | 9,850 | 4,294 | |||||||||||||||||||
| Conversion of Class B to Class A shares | 4,294 | — | 4,294 | — | |||||||||||||||||||
| Weighted average shares outstanding, diluted | 14,144 | 4,294 | 14,144 | 4,294 | |||||||||||||||||||
Outstanding stock options to purchase Class A shares of 102 and 156 were excluded from the calculation of diluted net income per share at January 29, 2022 and January 23, 2021, respectively, as a result of their anti-dilutive effect. In addition, 380 and 413 non-vested restricted Class A shares, which are considered participating securities, and their allocated net income were excluded from the diluted net income per share calculation at January 29, 2022 and January 23, 2021, respectively, due to their anti-dilutive effect.
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4. PENSION PLANS
Net periodic pension cost for the three defined benefit pension plans sponsored in fiscal 2022 and 2021 includes the following components:
| 13 Weeks Ended | 26 Weeks Ended | ||||||||||||||||||||||
| January 29, 2022 | January 23, 2021 | January 29, 2022 | January 23, 2021 | ||||||||||||||||||||
| Service cost | $ | 47 | $ | 54 | $ | 94 | $ | 108 | |||||||||||||||
| Interest cost on projected benefit obligations | 420 | 422 | 840 | 844 | |||||||||||||||||||
| Expected return on plan assets | (409) | (483) | (818) | (966) | |||||||||||||||||||
| Amortization of net losses | 126 | 147 | 252 | 294 | |||||||||||||||||||
| Net periodic pension cost | $ | 184 | $ | 140 | $ | 368 | $ | 280 | |||||||||||||||
As of January 29, 2022, the Company has not made any contributions to its pension plans in fiscal 2022. The Company expects to terminate one of the plans during fiscal 2022. The Company will fully fund this plan and liquidate all plan assets to purchase annuity contracts from an insurance company for all participants who do not elect a lump sum distribution. As of July 31, 2021, the funded status of this plan was a net liability of $3,844. Contributions to the remaining plans are expected to be immaterial in fiscal 2022.
5. RELATED PARTY INFORMATION
A description of the Company’s transactions with Wakefern, its principal supplier, and with other related parties is included in the Company’s Annual Report on Form 10-K for the year ended July 31, 2021.
Included in cash and cash equivalents at January 29, 2022 and July 31, 2021 are $88,338 and $86,670, respectively, of demand deposits invested at Wakefern at overnight money market rates.
There have been no other significant changes in the Company’s relationships or nature of transactions with related parties during the 26 weeks ended January 29, 2022.
6. COMMITMENTS and CONTINGENCIES
The Company is involved in other litigation incidental to the normal course of business. Company management is of the opinion that the ultimate resolution of these legal proceedings should not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company.
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7. DEBT
Long-term debt consists of:
| January 29, 2022 | July 31, 2021 | |||||||||||||
| Secured term loans | $ | 52,650 | $ | 47,025 | ||||||||||
| Unsecured term loan | 19,307 | 21,104 | ||||||||||||
| New Market Tax Credit Financing | 5,551 | 5,674 | ||||||||||||
| Total debt, excluding obligations under leases | 77,508 | 73,803 | ||||||||||||
| Less current portion | 7,466 | 6,976 | ||||||||||||
| Total long-term debt, excluding obligations under leases | $ | 70,042 | $ | 66,827 | ||||||||||
Credit Facility
On January 28, 2022, the Company entered into an amended and restated credit agreement of the Company’s $150,500 credit facility (the “Credit Facility”) with Wells Fargo National Bank, National Association (“Wells Fargo”). The notable changes from the previous agreement include: (1) Modification of the reference rate from the London Interbank Offered Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR") as a result of the expected cessation of LIBOR, (2) The execution of a fifteen-year $7,350 secured term loan to finance the acquisition of the Galloway store shopping center and (3) Modification of the definition of Total Adjusted Debt for the purpose of determining the maximum adjusted debt to EBITDAR ratio financial covenant, as defined in the Credit Facility. Among other things, the Credit Facility provides for:
•An unsecured revolving line of credit providing a maximum amount available for borrowing of $75,000. Indebtedness under this agreement bears interest at the applicable SOFR plus 1.10% and expires on May 6, 2025.
•An unsecured $25,500 term loan issued on May 12, 2020, repayable in equal monthly installments based on a seven-year amortization schedule through May 4, 2027 and bearing interest at the applicable SOFR plus 1.46%. Prior to the January 28, 2022 amendment to the credit facility, interest accrued on the unsecured term loan at the applicable LIBOR plus 1.35%. An interest rate swap with notional amounts equal to the term loan fixed the base LIBOR at .41%, resulting in a fixed effective rate of 1.76%. In February 2022, the Company executed an amendment and restatement of the interest rate swap that changes the reference rate to SOFR and fixes the base SOFR at .26% per annum through May 4, 2027, resulting in a fixed effective interest rate of 1.72% on the term loan.
•A secured $50,000 term loan issued on September 1, 2020 repayable in equal monthly installments based on a fifteen-year amortization schedule through September 1, 2035 and bearing interest at the applicable SOFR plus 1.61%. Prior to the January 28, 2022 amendment to the credit facility, interest accrued on the secured term loan at the applicable LIBOR plus 1.50%. An interest rate swap with notional amounts equal to the term loan fixed the base LIBOR at .69%, resulting in a fixed effective rate of 2.19%. In February 2022, the Company executed an amendment and restatement of the interest rate swap related to the term loan that changes the reference rate to SOFR and fixes the base SOFR at .57% per annum through September 1, 2035, resulting in a fixed effective interest rate of 2.18% on the term loan. The term loan is secured by real properties of Village Super Market, Inc. and its subsidiaries, including the sites of three Village stores.
•A secured $7,350 term loan issued on January 28, 2022 repayable in equal monthly installments based on a fifteen-year amortization schedule through January 28, 2037 and bearing interest at the applicable SOFR plus 1.50%. Additionally, Village executed an interest rate swap for a notional amount equal to the term loan amount that fixes the base SOFR at 1.41% per annum, resulting in a fixed effective interest rate of 2.91% on the term loan. The term loan is secured by the Galloway store shopping center acquired in the first quarter of fiscal 2022.
The principal purpose of the Credit Facility is to finance general corporate and working capital requirements, Village’s acquisition of certain Fairway assets and the purchase of the Galloway store shopping center. The Credit Facility also provides for up to $25,000 of letters of credit ($7,336 outstanding at January 29, 2022), which secure obligations for store leases and construction performance guarantees to municipalities. The Credit Facility contains covenants that, among other conditions,
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require a minimum tangible net worth, a minimum fixed charge coverage ratio and a maximum adjusted debt to EBITDAR ratio. The Company was in compliance with all covenants of the credit agreement at January 29, 2022.
New Markets Tax Credit Financing
On December 29, 2017, the Company entered into a financing transaction with Wells Fargo Community Investment Holdings, LLC (“Wells Fargo”) under a qualified New Markets Tax Credit (“NMTC”) program related to the construction of a new store in the Bronx, New York. The NMTC program was provided for in the Community Renewal Tax Relief Act of 2000 (the “Act”) and is intended to induce capital investment in qualified lower income communities. The Act permits taxpayers to claim credits against their Federal income taxes for up to 39% of qualified investments in the equity of community development entities (“CDEs”). CDEs are privately managed investment institutions that are certified to make qualified low-income community investments.
In connection with the financing, the Company loaned $4,835 to VSM Investment Fund, LLC (the "Investment Fund") at an interest rate of 1.403% per year and with a maturity date of December 31, 2044. Repayments on the loan commence in March 2025. Wells Fargo contributed $2,375 to the Investment Fund and, by virtue of such contribution, is entitled to substantially all of the tax benefits derived from the NMTC. The Investment Fund is a wholly owned subsidiary of Wells Fargo. The loan to the Investment Fund is recorded in other assets in the consolidated balance sheets.
The Investment Fund then contributed the proceeds to a CDE, which, in turn, loaned combined funds of $6,563, net of debt issuance costs, to Village Super Market of NY, LLC, a wholly-owned subsidiary of the Company, at an interest rate of 1.000% per year with a maturity date of December 31, 2051. These loans are secured by the leasehold improvements and equipment related to the construction of the Bronx store. Repayment of the loans commences in March 2025. The proceeds of the loans from the CDE were used to partially fund the construction of the Bronx store. The Notes payable related to New Markets Tax Credit, net of debt issuance costs, are recorded in long-term debt in the consolidated balance sheets.
The NMTC is subject to 100% recapture for a period of seven years. The Company is required to be in compliance with various regulations and contractual provisions that apply to the New Markets Tax Credit arrangement. Noncompliance could result in Wells Fargo's projected tax benefits not being realized and, therefore, require the Company to indemnify Wells Fargo for any loss or recapture of NMTCs. The Company does not anticipate any credit recapture will be required in connection with this financing arrangement. The transaction includes a put/call provision whereby the Company may be obligated or entitled to repurchase Wells Fargo's interest in the Investment Fund. The value attributed to the put/call is de minimis. We believe that Wells Fargo will exercise the put option in December 2024, at the end of the recapture period, that will result in a net benefit to the Company of $1,728. The Company is recognizing the net benefit over the seven-year compliance period in operating and administrative expense.
8. DERIVATIVES AND HEDGING ACTIVITIES
The Company is exposed to interest rate risk arising from fluctuations in LIBOR and SOFR related to the Company’s Credit Facility. The Company manages exposure to this risk and the variability of related cash flows primarily by the use of derivative financial instruments, specifically, interest rate swaps.
The Company’s objectives in using interest rate swaps are to add stability to interest expense and to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
As of January 29, 2022, the Company had three interest rate swaps with an aggregate notional value of $82,850 to hedge the variable cash flows associated with variable-rate loans under the Company's Credit Facility. The interest rate swaps were executed for risk management and are not held for trading purposes. The objective of the interest rate swaps is to hedge the variability of cash flows resulting from fluctuations in the reference rate. The swaps replaced the applicable reference rate with fixed interest rates and payments are settled monthly when payments are made on the variable-rate loans. The Company's derivatives qualify and have been designated as cash flow hedges of interest rate risk. The gain or loss on the derivative is recorded in Accumulated other comprehensive loss and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in Accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the variable-rate loans. The Company reclassified $85 and $82 during the 13 weeks ended January 29, 2022 and January 23, 2021, respectively, and $173 and $148 during the 26 weeks ended January 29, 2022 and January 23, 2021, respectively, from Accumulated other comprehensive loss to Interest expense.
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The notional value of the interest rate swaps were $72,334 as of January 29, 2022. The fair value of interest rate swaps recorded in other assets is $3,331 as of January 29, 2022.
In March 2020 and January 2021, the FASB issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" and ASU 2021-01, "Reference Rate Reform: Scope", respectively. These standards provide temporary optional expedients and exceptions for the application of GAAP to certain contract modifications, hedging relationships, and other arrangements that are expected to be impacted by the global transition away from certain reference rates, such as LIBOR. The guidance was effective upon issuance and, once adopted, may be applied prospectively to contract modifications and hedging relationships through December 31, 2022. During the second quarter of fiscal 2022, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Additionally, we elected to apply expedients related to the modification of hedged transactions related to reference rate reform. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The adoption of this portion of the ASU is not expected to have a material impact to our consolidated financial statements. We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
In connection with the modification of the reference rate from LIBOR to SOFR in the Amended and Restated Credit Facility, in February 2022, the Company executed the amendment and restatement of two interest rate swaps (see note 7). The modified rates are not expected to have a material impact to the consolidated financial statements.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands)
OVERVIEW
Village Super Market, Inc. (the “Company” or “Village”) operates a chain of twenty-nine ShopRite supermarkets, five Fairway Markets and three Gourmet Garage specialty markets located in New Jersey, New York, Pennsylvania and Maryland. Village is the second largest member of Wakefern Food Corporation (“Wakefern”), the nation’s largest retailer-owned food cooperative and owner of the ShopRite, Fairway Market and Gourmet Garage names. As further described in the Company’s Form 10-K, this ownership interest in Wakefern provides Village with many of the economies of scale in purchasing, distribution, advanced retail technology, marketing and advertising associated with chains of greater size and geographic coverage.
On February 22, 2021, Village closed the ShopRite store located in Silver Spring, Maryland. Despite continued investment in marketing and promotional programs, the store was unable to generate sales at a level sufficient to maintain profitability, resulting in its closure. The impacts associated with this closure were not material to the consolidated financial statements.
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, seven 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 Power Alley, which features high margin, fresh, convenience offerings in an area within the store that provides quick customer entry and exit for those customers shopping for today's lunch or dinner. Certain of our stores include the Village Food Garden concept featuring a restaurant style kitchen, and several kiosks offering a wide variety of store prepared specialty foods for both take-home and in-store dining.
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 | 26 Weeks Ended | ||||||||||||||||||||||
| January 29, 2022 | January 23, 2021 | January 29, 2022 | January 23, 2021 | ||||||||||||||||||||
| Sales | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | |||||||||||||||
| Cost of sales | 72.16 | 72.87 | 71.91 | 72.38 | |||||||||||||||||||
| Gross profit | 27.84 | 27.13 | 28.09 | 27.62 | |||||||||||||||||||
| Operating and administrative expense | 23.54 | 24.19 | 24.02 | 24.76 | |||||||||||||||||||
| Depreciation and amortization | 1.56 | 1.68 | 1.62 | 1.73 | |||||||||||||||||||
| Operating income | 2.74 | 1.26 | 2.45 | 1.13 | |||||||||||||||||||
| Interest expense | (0.18) | (0.19) | (0.19) | (0.19) | |||||||||||||||||||
| Interest income | 0.17 | 0.17 | 0.18 | 0.17 | |||||||||||||||||||
| Income before taxes | 2.73 | 1.24 | 2.44 | 1.11 | |||||||||||||||||||
| Income taxes | 0.83 | 0.37 | 0.75 | 0.33 | |||||||||||||||||||
| Net income | 1.90 | % | 0.87 | % | 1.69 | % | 0.78 | % | |||||||||||||||
Sales. Sales were $537,408 in the 13 weeks ended January 29, 2022, an increase of 2.8% compared to the 13 weeks ended January 23, 2021. Sales increased due to an increase in same store sales of 4.4% partially offset by the closure of the Silver Spring, Maryland store in February 2021. Same store sales increased due primarily to increased sales in New York City stores, retail price inflation and continued growth in Supplemental Nutrition Assistance Program ("SNAP") benefit redemptions. Increases in transaction counts were partially offset by decreased basket sizes and same store digital sales were flat as we cycled against the initial months following the COVID-19 outbreak in our trade area.
Sales were $1,031,619 in the 26 weeks ended January 29, 2022, an increase of 1.8% compared to the 26 weeks ended January 23, 2021. Sales increased due to an increase in same store sales of 3.4% partially offset by the closure of the Silver Spring, Maryland store in February 2021. Same store sales increased due primarily to increased sales in New York City stores, retail price inflation and continued growth in SNAP benefit redemptions. Increases in transaction counts were partially offset by decreased basket sizes and same store digital sales were flat as we cycled against the initial months following the COVID-19 outbreak in our trade area.
On a two-year stacked basis, same store sales increased 10.9% and 10.0% in the 13 and 26 weeks ended January 29, 2022, respectively. Same store digital sales increased 154% on a two-year stacked basis for both the 13 and 26 weeks ended January 29, 2022.
New stores and replacement stores are included in same store sales in the quarter after the store has been in operation for four full quarters. Store renovations and expansions are included in same store sales immediately.
Gross Profit. Gross profit as a percentage of sales increased .71% in the 13 weeks ended January 29, 2022 compared to the 13 weeks ended January 23, 2021 due primarily to increased departmental gross margin percentages (.63%), a favorable change in product mix (.12%) and decreased warehouse assessment charges from Wakefern (.20%), partially offset by decreased patronage dividends and rebates received from Wakefern (.24%). Department gross margins increased due primarily to pricing initiatives and improvements in commissary operations.
Gross profit as a percentage of sales increased .47% in the 26 weeks ended January 29, 2022 compared to the 26 weeks ended January 23, 2021 due primarily to increased departmental gross margin percentages (.66%) and a favorable change in product mix (.10%), partially offset by increased warehouse assessment charges from Wakefern (.17%) and decreased patronage dividends and rebates received from Wakefern (.12%). Department gross margins increased due primarily to pricing initiatives and improvements in commissary operations.
Operating and Administrative Expense. Operating and administrative expense as a percentage of sales decreased .65% in the 13 weeks ended January 29, 2022 compared to the 13 weeks ended January 23, 2021 due primarily to lower labor costs and fringe benefits (.70%) and less advertising spending (.12%), partially offset by higher maintenance and repair costs (0.10%)
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and increased external fees and transportation costs associated with digital sales (.07%). Labor costs decreased due to productivity initiatives, labor shortages and sales leverage partially offset by minimum wage and demand driven pay rate increases.
Operating and administrative expense as a percentage of sales decreased .74% in the 26 weeks ended January 29, 2022 compared to the 26 weeks ended January 23, 2021 due primarily to lower labor costs and fringe benefits (.77%) and less advertising spending (.12%), partially offset by increased external fees and transportation costs associated with digital sales (.11%). Labor costs decreased due to productivity initiatives, labor shortages and sales leverage partially offset by minimum wage and demand driven pay rate increases.
Depreciation and Amortization. Depreciation and amortization expense decreased in both the 13 and 26 weeks ended January 29, 2022 compared to the 13 and 26 weeks ended January 23, 2021 due primarily to closure of the Silver Spring, Maryland ShopRite in February 2021.
Interest Expense. Interest expense decreased in both the 13 and 26 weeks ended January 29, 2022 compared to the 13 and 26 weeks ended January 23, 2021 due to lower average outstanding borrowings.
Interest Income. Interest income increased in both the 13 and 26 weeks ended January 29, 2022 compared to the 13 and 26 weeks ended January 23, 2021 due primarily to larger amounts invested in variable rate notes receivable from Wakefern and demand deposits invested at Wakefern.
Income Taxes. The effective income tax rate was 30.7% in the both the 13 and 26 weeks ended January 29, 2022 compared to 29.9% in the 13 and 26 weeks ended January 23, 2021. The increase in the effective income tax rate is due primarily to greater apportionment in higher state tax rate jurisdictions.
Net Income. Net income was $10,129 in the 13 weeks ended January 29, 2022 compared to $4,555 in the 13 weeks ended January 23, 2021 due primarily to the 4.4% increase in same store sales, higher gross profit margins and lower payroll costs.
Net income was $17,457 in the 26 weeks ended January 29, 2022 compared to $7,916 in the 26 weeks ended January 23, 2021 due primarily to the 3.4% increase in same store sales, higher gross profit margins and lower payroll costs.
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 July 31, 2021. As of January 29, 2022, there have been no changes to the critical accounting policies contained therein.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $40,274 in the 26 weeks ended January 29, 2022 compared to $24,911 in the corresponding period of the prior year. The change in cash flows from operating activities in fiscal 2022 was primarily due to changes in working capital and higher net income. Working capital changes, including Other assets and liabilities, increased cash flows from operating activities by $4,986 in fiscal 2022 compared to a decrease of $939 in fiscal 2021. The change in impact of working capital is due primarily to an increase in accounts payable to Wakefern and a lesser increase in merchandise inventories partially offset by an increase in income taxes receivable.
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During the 26 weeks ended January 29, 2022, Village used cash to fund capital expenditures of $30,483, dividends of $6,525, principal payments of long-term debt of $3,975 and additional investments of $1,190 in notes receivable from Wakefern. Capital expenditures primarily include costs associated with the purchase of the Galloway store shopping center, the purchase of land in central New Jersey for a potential replacement store and other development, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.
We expect capital expenditures to approximate $60,000 in fiscal 2022. Planned expenditures include two major remodels, several smaller store remodels, the purchase of the Galloway store shopping center, the purchase of the Vineland store shopping center, the purchase of land in central New Jersey for a potential replacement store and other development, one new Gourmet Garage store, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.
At January 29, 2022, the Company held variable rate notes receivable due from Wakefern of $27,949 that earn interest at the prime rate plus 1.25% and mature on August 15, 2022 and $28,536 that earn interest at the prime rate plus .75% and mature on February 15, 2024. Wakefern has the right to prepay these notes at any time. Under certain conditions, the Company can require Wakefern to prepay the notes, although interest earned since inception would be reduced as if it was earned based on overnight money market rates as paid by Wakefern on demand deposits.
Working capital was $75,170 at January 29, 2022 compared to $44,023 at July 31, 2021. Working capital ratios at the same dates were 1.48 and 1.29 to one, respectively. The increase in working capital in fiscal 2022 compared to fiscal 2021 is due primarily to $27,949 in notes receivable from Wakefern that have been reclassified to current assets as they mature on August 15, 2022. The Company’s working capital needs are reduced, since inventories are generally sold by the time payments to Wakefern and other suppliers are due.
Credit Facility
On January 28, 2022, the Company entered into an amended and restated credit agreement of the Company’s $150,500 credit facility (the “Credit Facility”) with Wells Fargo National Bank, National Association (“Wells Fargo”). The notable changes from the previous agreement include: (1) Modification of the reference rate from the London Interbank Offered Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR") as a result of the expected cessation of LIBOR, (2) The execution of a fifteen-year $7,350 secured term loan to finance the acquisition of the Galloway shopping center and (3) Modification of the definition of Total Adjusted Debt for the purpose of determining the maximum adjusted debt to EBITDAR ratio financial covenant. Among other things, the Credit Facility provides for:
•An unsecured revolving line of credit providing a maximum amount available for borrowing of $75,000. Indebtedness under this agreement bears interest at the applicable SOFR plus 1.10% and expires on May 6, 2025.
•An unsecured $25,500 term loan issued on May 12, 2020, repayable in equal monthly installments based on a seven-year amortization schedule through May 4, 2027 and bearing interest at the applicable SOFR plus 1.46%. Prior to the January 28, 2022 amendment to the credit facility, interest accrued on the unsecured term loan at the applicable LIBOR plus 1.35%. An interest rate swap with notional amounts equal to the term loan fixed the base LIBOR at .41%, resulting in a fixed effective rate of 1.76%. In February 2022, the Company executed an amendment and restatement of the interest rate swap that fixes the base SOFR at .26% per annum through May 4, 2027, resulting in a fixed effective interest rate of 1.72% on the term loan.
•A secured $50,000 term loan issued on September 1, 2020 repayable in equal monthly installments based on a fifteen-year amortization schedule through September 1, 2035 and bearing interest at the applicable SOFR plus 1.61%. Prior to the January 28, 2022 amendment to the credit facility, interest accrued on the secured term loan at the applicable LIBOR plus 1.50%. An interest rate swap with notional amounts equal to the term loan fixed the base LIBOR at .69%, resulting in a fixed effective rate of 2.19%. In February 2022, the Company executed an amendment and restatement of the interest rate swap related to the term loan that fixes the base SOFR at .57% per annum through September 1, 2035, resulting in a fixed effective interest rate of 2.18% on the term loan. The term loan is secured by real properties of Village Super Market, Inc. and its subsidiaries, including the sites of three Village stores.
•A secured $7,350 term loan issued on January 28, 2022 repayable in equal monthly installments based on a fifteen-year amortization schedule through January 28, 2037 and bearing interest at the applicable SOFR plus 1.50%. Additionally, Village executed an interest rate swap for a notional amount equal to the term loan amount that fixes the base SOFR at 1.41% per annum, resulting in a fixed effective interest rate of 2.91% on the term loan. The term loan is secured by the Galloway store shopping center acquired in the first quarter of fiscal 2022.
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The principal purpose of the Credit Facility is to finance general corporate and working capital requirements, Village’s acquisition of certain Fairway assets and the purchase of the Galloway store shopping center. The Credit Facility also provides for up to $25,000 of letters of credit ($7,336 outstanding at January 29, 2022), which secure obligations for store leases and construction performance guarantees to municipalities. The Credit Facility contains covenants that, among other conditions, require a minimum tangible net worth, a minimum fixed charge coverage ratio and a maximum adjusted debt to EBITDAR ratio. The Company was in compliance with all covenants of the credit agreement at January 29, 2022.
Based on current trends, the Company believes cash and cash equivalents on hand at January 29, 2022, operating cash flow and availability under our Credit Facility are sufficient to meet our liquidity needs for the next twelve months and for the foreseeable future beyond the next twelve months.
There have been no other substantial changes as of January 29, 2022 to the contractual obligations and commitments discussed in the Company’s Annual Report on Form 10-K for the year ended July 31, 2021.
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 approximate $60,000 in fiscal 2022. Planned expenditures include two major remodels, several smaller store remodels, the purchase of the Galloway store shopping center, the purchase of the Vineland store shopping center, the purchase of land in central New Jersey for a potential replacement store and other development, one new Gourmet 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 $.25 per Class A and $.1625 per Class B share.
•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 $15,891 of net periodic pension costs in fiscal 2022 related to the three Company sponsored defined benefit pension plans, including a $15,155 non-cash, pre-tax settlement charge representing the remaining unrecognized losses within accumulated other comprehensive loss related to a plan termination expected to occur during fiscal 2022. The Company will fully fund this plan and liquidate all plan assets to purchase annuity contracts from an insurance company for all participants who do not elect a lump sum distribution. As of July 31, 2021, the funded status of this plan was a net liability of $3,844. Contributions to the remaining plans are expected to be immaterial in fiscal 2022.
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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 Manhattan and less commuter and tourist traffic during the COVID-19 pandemic. Many of these potential circumstances are outside of our control and any of them could result in an adverse impact on our results of operations, financial condition and cash flows and the diversion of management time and resources.
•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 New Jersey, New York, Pennsylvania and Maryland. We are vulnerable to economic downturns in these states in addition to those that may affect the country as a whole. Economic conditions such as inflation, deflation, interest rate fluctuations, movements in energy costs, social programs, minimum wage legislation, unemployment rates, disturbances due to social unrest and changing demographics may adversely affect our sales and profits.
•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.
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•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.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Exchange Act, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures at the end of the period. This evaluation was carried out under the supervision, and with the participation, of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer. Based upon that evaluation, the Company’s Chief Executive Officer, along with the Company’s Chief Financial Officer, concluded that the Company’s disclosure controls and procedures are effective.
Disclosure controls and procedures are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
There have been no changes in the Company’s internal control over financial reporting during the quarter ended January 29, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
Item 6. | Exhibits | ||||
| Exhibit 4.1 | |||||
| Exhibit 4.2 | |||||
| Exhibit 4.3 | |||||
| Exhibit 4.4 | |||||
| Exhibit 4.5 | |||||
| Exhibit 31.1 | |||||
| Exhibit 31.2 | |||||
| Exhibit 32.1 | Certification (furnished, not filed) | ||||
| Exhibit 32.2 | Certification (furnished, not filed) | ||||
| Exhibit 99.1 | |||||
| 101 INS | XBRL Instance | ||||
| 101 SCH | XBRL Schema | ||||
| 101 CAL | XBRL Calculation | ||||
| 101 DEF | XBRL Definition | ||||
| 101 LAB | XBRL Label | ||||
| 101 PRE | XBRL Presentation | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Village Super Market, Inc. | |||||
| Registrant | |||||
| Dated: March 10, 2022 | /s/ Robert P. Sumas | ||||
| Robert P. Sumas | |||||
| (Chief Executive Officer) | |||||
| Dated: March 10, 2022 | /s/ John Van Orden | ||||
| John Van Orden | |||||
| (Chief Financial Officer) | |||||
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