WEIS MARKETS INC - Quarter Report: 2020 June (Form 10-Q)

wmk-20200627x10q

UNITED STATES
‎SECURITIES AND EXCHANGE COMMISSION
‎WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 27, 2020
	or
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________to_________
	Commission File Number 1-5039

WEIS MARKETS, INC.
‎(Exact name of registrant as specified in its charter)

Pennsylvania

(State or other jurisdiction of incorporation or organization)

24-0755415
‎(I.R.S. Employer Identification No.)

1000 S. Second Street
‎P. O. Box 471
‎Sunbury, Pennsylvania
‎(Address of principal executive offices)

‎
‎17801-0471
‎(Zip Code)


Registrant's telephone number, including area code: (570) 286-4571	Registrant's web address: www.weismarkets.com

Not Applicable
‎(Former name, former address and former fiscal year, if changed since last report)

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 [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
‎


Large accelerated filer [ ]		Accelerated filer [X]
Non-accelerated filer [ ]		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 [X]

Securities registered pursuant to section 12(b) of the act:


Title of each class	Trading symbol	Name of exchange on which registered
Common stock, no par value	WMK	New York Stock Exchange

As of August 5, 2020, there were issued and outstanding 26,898,443 shares of the registrant’s common stock.

‎

WEIS MARKETS, INC.

TABLE OF CONTENTS


FORM 10-Q	Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets	1
Consolidated Statements of Income	2
Consolidated Statements of Comprehensive Income	3
Consolidated Statements of Shareholders’ Equity	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3. Quantitative and Qualitative Disclosures about Market Risk	18
Item 4. Controls and Procedures	18
Part II. Other Information
Item 1a. Risk Factors	19
Item 6. Exhibits	20
Signatures	21
Exhibit 31.1 Rule 13a-14(a) Certification - CEO
Exhibit 31.2 Rule 13a-14(a) Certification - CFO
Exhibit 32 Certification Pursuant to 18 U.S.C. Section 1350

Table of Contents

WEIS MARKETS, INC.

PART I – FINANCIAL INFORMATION

ITEM I – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(unaudited)


(dollars in thousands)	June 27, 2020		December 28, 2019
Assets
Current:
Cash and cash equivalents	$	108,660	$	66,871
Marketable securities		97,256		63,538
SERP investment		19,230		18,935
Accounts receivable, net		48,541		55,764
Inventories		278,456		279,806
Prepaid expenses and other current assets		26,236		23,378
Total current assets		578,379		508,292
Property and equipment, net		887,285		886,928
Operating lease right-to-use		202,840		210,196
Goodwill		52,330		52,330
Intangible and other assets, net		18,296		17,816
Total assets	$	1,739,130	$	1,675,562

Liabilities
Current:
Accounts payable	$	181,088	$	180,718
Accrued expenses		35,778		39,528
Operating leases		38,048		39,114
Accrued self-insurance		17,282		15,719
Deferred revenue, net		6,244		8,662
Income taxes payable		32,878		8,197
Total current liabilities		311,318		291,938
Postretirement benefit obligations		21,822		22,143
Accrued self-insurance		17,616		17,625
Operating leases		172,970		179,654
Deferred income taxes		96,416		97,041
Other		7,641		8,416
Total liabilities		627,783		616,817
Shareholders’ Equity
Common stock, no par value, 100,800,000 shares authorized, 33,047,807 shares issued,
26,898,443 shares outstanding		9,949		9,949
Retained earnings		1,249,657		1,198,173
Accumulated other comprehensive income
(Net of deferred taxes of $1,026 in 2020 and $593 in 2019)		2,598		1,480
		1,262,204		1,209,602
Treasury stock at cost, 6,149,364 shares		(150,857)		(150,857)
Total shareholders’ equity		1,111,347		1,058,745
Total liabilities and shareholders’ equity	$	1,739,130	$	1,675,562

See accompanying notes to Consolidated Financial Statements.

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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)



	13 Weeks Ended				26 Weeks Ended
(dollars in thousands, except shares and per share amounts)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Net sales	$	1,098,704	$	887,967	$	2,084,524	$	1,764,686
Cost of sales, including advertising, warehousing and distribution expenses		805,816		651,297		1,527,489		1,298,463
Gross profit on sales		292,888		236,670		557,035		466,223
Operating, general and administrative expenses		236,886		210,373		463,605		422,105
Income from operations		56,002		26,297		93,430		44,118
Investment income (loss) and interest expense		3,066		1,079		(953)		3,975
Other income (expense)		(2,618)		(428)		58		(2,270)
Income before provision for income taxes		56,450		26,948		92,535		45,823
Provision for income taxes		14,978		6,473		24,374		11,043
Net income	$	41,472	$	20,475	$	68,161	$	34,780

Weighted-average shares outstanding, basic and diluted		26,898,443		26,898,443		26,898,443		26,898,443
Cash dividends per share	$	0.31	$	0.31	$	0.62	$	0.62
Basic and diluted earnings per share	$	1.54	$	0.76	$	2.53	$	1.29

See accompanying notes to Consolidated Financial Statements.
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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)



	13 Weeks Ended				26 Weeks Ended
(dollars in thousands)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Net income	$	41,472	$	20,475	$	68,161	$	34,780
Other comprehensive income (loss) by component, net of tax:
Available-for-sale marketable securities
Unrealized holding gains (losses) arising during period
(Net of deferred taxes of $396 and $179, respectively for the thirteen weeks ended and $433 and $423, respectively for the twenty-six weeks ended)		1,023		454		1,118		1,075
Reclassification adjustment for (gains) losses included in net income
(Net of deferred taxes of $2 and $0, respectively for the thirteen weeks ended and $0 and $0, respectively for the twenty-six weeks ended)		6		-		-		-
Other comprehensive income gain (loss), net of tax		1,029		454		1,118		1,075
Comprehensive income, net of tax	$	42,501	$	20,929	$	69,279	$	35,855

See accompanying notes to Consolidated Financial Statements.

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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited)



						Accumulated
(dollars in thousands, except shares)						Other						Total
For Thirteen Weeks Ended	Common Stock			Retained		Comprehensive		Treasury Stock				Shareholders’
June 27, 2020 and June 29, 2019	Shares	Amount		Earnings		Income (Loss)		Shares		Amount		Equity
Balance at March 28, 2020	33,047,807	$	9,949	$	1,216,524	$	1,569		6,149,364	$	(150,857)	$	1,077,185
Net Income	—		—		41,472		—		—		—		41,472
Other comprehensive income, net of
reclassification adjustments and tax	—		—		—		1,029		—		—		1,029
Dividends paid	—		—		(8,339)		—		—		—		(8,339)
Balance at June 27, 2020	33,047,807	$	9,949	$	1,249,657	$	2,598		6,149,364	$	(150,857)	$	1,111,347

Balance at March 30, 2019	33,047,807	$	9,949	$	1,169,510	$	883		6,149,364	$	(150,857)	$	1,029,485
Net income	—		—		20,475		—		—		—		20,475
Other comprehensive income, net of
reclassification adjustments and tax	—		—		—		454		—		—		454
Dividends paid	—		—		(8,339)		—		—		—		(8,339)
Balance at June 29, 2019	33,047,807	$	9,949	$	1,181,647	$	1,337		6,149,364	$	(150,857)	$	1,042,076



						Accumulated
(dollars in thousands, except shares)						Other						Total
For the Twenty-Six weeks Ended	Common Stock			Retained		Comprehensive		Treasury Stock				Shareholders’
June 27, 2020 and June 29, 2019	Shares	Amount		Earnings		Income (Loss)		Shares		Amount		Equity
Balance at December 28, 2019	33,047,807	$	9,949	$	1,198,173	$	1,480		6,149,364	$	(150,857)	$	1,058,745
Net Income	—		—		68,161		—		—		—		68,161
Other comprehensive income, net of
reclassification adjustments and tax	—		—		—		1,118		—		—		1,118
Dividends paid	—		—		(16,677)		—		—		—		(16,677)
Balance at June 27, 2020	33,047,807	$	9,949	$	1,249,657	$	2,598		6,149,364	$	(150,857)	$	1,111,347

Balance at December 29, 2018	33,047,807	$	9,949	$	1,163,545	$	262		6,149,364	$	(150,857)	$	1,022,899
Net income	—		—		34,780		—		—		—		34,780
Other comprehensive income, net of
reclassification adjustments and tax	—		—		—		1,075		—		—		1,075
Dividends paid	—		—		(16,677)		—		—		—		(16,677)
Balance at June 29, 2019	33,047,807	$	9,949	$	1,181,647	$	1,337		6,149,364	$	(150,857)	$	1,042,076

See accompanying notes to Consolidated Financial Statements.

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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	26 Weeks Ended
(dollars in thousands)		June 27, 2020		June 29, 2019
Cash flows from operating activities:
Net income	$	68,161	$	34,780
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization		47,794		46,324
Loss on disposition of fixed assets		1,858		806
Unrealized (gain) loss in value of equity securities		2,013		(848)
Deferred income taxes		(1,057)		(482)
Unrealized (gain) loss in SERP		383		(1,360)
Changes in operating assets and liabilities:
Inventories		1,351		14,413
Accounts receivable and prepaid expenses		4,365		10,762
Accounts payable and other liabilities		(6,302)		(29,423)
Income taxes		24,682		2,147
Other		(4,173)		487
Net cash provided by operating activities		139,075		77,606
Cash flows from investing activities:
Purchase of property and equipment		(49,731)		(44,335)
Proceeds from the sale of property and equipment		277		1,320
Purchase of marketable securities		(33,194)		(4,205)
Proceeds from the sale and maturities of marketable securities		2,675		2,785
Purchase of intangible assets		41		(540)
Change in SERP investment		(677)		(2,116)
Net cash used in investing activities		(80,609)		(47,091)
Cash flows from financing activities:
Dividends paid		(16,677)		(16,677)
Net cash used in financing activities		(16,677)		(16,677)
Net increase (decrease) in cash and cash equivalents		41,789		13,838
Cash and cash equivalents at beginning of year		66,871		37,808
Cash and cash equivalents at end of period	$	108,660	$	51,646

See accompanying notes to Consolidated Financial Statements. In the first twenty-six weeks of 2020, there was $750 thousand cash paid for income taxes compared to $9.4 million in 2019 for the same period. Cash paid for interest related to long-term debt was $19 thousand and $49 thousand in the first twenty-six weeks of 2020 and 2019, respectively.

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WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Significant Accounting Policies

Basis of Presentation: The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring deferrals and accruals) considered necessary for a fair presentation have been included. The operating results for the periods presented are not necessarily indicative of the results to be expected for the full year. The Company has evaluated subsequent events for disclosure through the date of issuance of the accompanying unaudited consolidated interim financial statements and there were no material subsequent events which require additional disclosure. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company's latest Annual Report on Form 10-K.

(2) Current Relevant Accounting Standards

The Company regularly monitors recently issued accounting standards and assesses their applicability and impact. The Company believes that there are no accounting standard updates that have or will have a material or significant impact on the Company's accounting policies.

(3) Marketable Securities

The Company’s marketable securities are all classified as available-for-sale within “Current Assets” in the Company’s Consolidated Balance Sheets. FASB has established three levels of inputs that may be used to measure fair value:

Level 1 Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2 Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and

Level 3 Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

The Company’s marketable securities valued using Level 1 inputs include highly liquid equity securities, for which quoted market prices are available. The Company’s municipal bond portfolio is valued using Level 2 inputs. The Company’s municipal bonds are valued using a combination of pricing for similar securities, recently executed transactions, cash flow models with yield curves and other pricing models utilizing observable inputs, which are considered Level 2 inputs.

For Level 2 investment valuation, the Company utilizes standard pricing procedures of its investment advisory firm which includes various third party pricing services. These procedures also require specific price monitoring practices as well as pricing review reports, valuation oversight and pricing challenge procedures to maintain the most accurate representation of investment fair market value.

The Company accrues interest on its bond portfolio throughout the life of each bond held. Dividends from the equity securities are recognized as received. Interest, dividends and unrealized gains and losses on equity securities are recognized in “Investment income and interest expense” on the Company’s Consolidated Statements of Income. The Company recognized investment income of $3.1 million in the second quarter of 2020, which included an unrealized loss in equity securities of $91 thousand. In the thirteen weeks ending June 29, 2019, the Company recognized investment income of $1.1 million, which included unrealized gains in equity securities of $223 thousand. In the twenty-six weeks ending June 27, 2020, the Company recognized investment losses of $934 thousand, which included unrealized losses in equity securities of $2 million. In the twenty-six weeks ending June 29, 2019, the Company recognized investment income of $4 million, which included unrealized gains in equity securities of $848 thousand.

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WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(3) Marketable Securities (continued)

Marketable securities, as of June 27, 2020 and December 28, 2019, consisted of:



			Gross		Gross
(dollars in thousands)	Amortized		Unrealized		Unrealized		Fair
June 27, 2020	Cost		Holding Gains		Holding Losses		Value
Available-for-sale:
Level 1
Equity securities							$	7,188
Level 2
Municipal bonds	$	86,445	$	4,535	$	(912)		90,068
	$	86,445	$	4,535	$	(912)	$	97,256



			Gross		Gross
(dollars in thousands)	Amortized		Unrealized		Unrealized		Fair
December 28, 2019	Cost		Holding Gains		Holding Losses		Value
Available-for-sale:
Level 1
Equity securities							$	9,201
Level 2
Municipal bonds	$	52,264	$	2,091	$	(18)		54,337
	$	52,264	$	2,091	$	(18)	$	63,538

Maturities of marketable securities classified as available-for-sale at June 27, 2020, were as follows:
‎


		Amortized		Fair
(dollars in thousands)		Cost		Value
Available-for-sale:
Due within one year	$	8,072	$	8,108
Due after one year through five years		33,173		34,491
Due after five years through ten years		45,200		47,469
	$	86,445	$	90,068

SERP Investments

The Company also maintains a non-qualified supplemental executive retirement plan for certain of its associates which allows them to defer income to future periods. Participants in the plans earn a return on their deferrals based on mutual fund investments. The Company chooses to invest in the underlying mutual fund investments to offset the liability associated with the non-qualified deferred compensation plans. Such investments are reported on the Company’s Consolidated Balance Sheets as “SERP investment,” are classified as trading securities and are measured at fair value using Level 1 inputs with gains and losses included in “Investment income and interest expense” on the Company’s Consolidated Statements of Income. The changes in the underlying liability to the associates are recorded in “Other income (expense).”

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WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(4) Accumulated Other Comprehensive Income

All balances in accumulated other comprehensive income are related to available-for-sale marketable securities. The following table sets forth the balance of the Company’s accumulated other comprehensive income, net of tax.



		Unrealized Gains
		on Available-for-Sale
(dollars in thousands)		Marketable Securities
Accumulated other comprehensive income balance as of December 28, 2019	$	1,480

Other comprehensive income before reclassifications		1,118
Amounts reclassified from accumulated other comprehensive income		-
Net current period change in other comprehensive income		1,118
Accumulated other comprehensive income balance as of June 27, 2020	$	2,598

The following table sets forth the effects on net income of the amounts reclassified out of accumulated other comprehensive income for the periods ended June 27, 2020 and June 29, 2019.



		Amounts Reclassified from
		Accumulated Other Comprehensive Income to the
		Consolidated Statements of Income
		13 Weeks Ended				26 Weeks Ended
(dollars in thousands)	Location	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Unrealized gains (losses) on available-for-sale marketable securities
	Investment income (loss) and interest expense	$	8	$	-	$	-	$	-
	Provision for income taxes		(2)		-		-		-
Total amount reclassified, net of tax		$	6	$	-	$	-	$	-

(5) Long-Term Debt

On September 1, 2016 Weis Markets entered into a revolving credit agreement with Wells Fargo Bank, National Association (the “Credit Agreement”), which was amended on August 21, 2019 and matures on September 1, 2022. The Credit Agreement provides for an unsecured revolving credit facility with an aggregate principal amount not to exceed $30.0 million with an additional discretionary amount available of $70.0 million. As of June 27, 2020, the availability under the revolving credit agreement was $24.0 million, net of $6.0 million letters of credit. The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company.

Interest expense related to long-term debt was $10 thousand and $14 thousand in the thirteen weeks ended June 27, 2020 and June 29, 2019, respectively. In the first twenty-six weeks of 2020 and 2019, interest expense related to long-term debt totaled $18 thousand and $33 thousand, respectively.

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WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(6) Revenue Recognition

The Chief Operating Officer, the Company’s chief operating decision maker, analyzes store operational revenues by geographical area but each area offers customers similar product, has similar distribution methods, and is supported by centralized management processes. The Company’s operations are reported as a single reportable segment.

The following table represents net sales by type of product for the thirteen and twenty-six week periods ending June 27, 2020 and June 29, 2019:


	13 Weeks Ended
(dollars in thousands)	June 27, 2020				June 29, 2019
Grocery	$	987,502	89.9	%	$	767,886	86.6	%
Pharmacy		85,808	7.8			84,682	9.5
Fuel		23,129	2.1			33,271	3.7
Manufacturing		2,265	0.2			2,128	0.2

Total net sales	$	1,098,704	100.0	%	$	887,967	100.0	%


	26 Weeks Ended
(dollars in thousands)	June 27, 2020				June 29, 2019
Grocery	$	1,851,249	88.9	%	$	1,534,787	87.0	%
Pharmacy		175,142	8.4			166,463	9.4
Fuel		53,096	2.5			59,736	3.4
Manufacturing		5,037	0.2			3,700	0.2

Total net sales	$	2,084,524	100.0	%	$	1,764,686	100.0	%

(7) Leases

As of June 27, 2020, the Company leased approximately 51% of its open store facilities under operating leases that expire at various dates through 2035, with the remaining store facilities being owned. These leases generally provide for fixed annual rentals; however, several provide for minimum annual rentals plus variable lease costs related to real estate taxes and insurance as well as contingent rentals based on a percentage of annual sales or increases periodically based on inflation. These variable lease costs are not included in the measurement of the operating lease right-to-use assets or lease liabilities and are charged to the related expense category included in “Operating, general and administrative expenses.” Most of the leases contain multiple renewal options, under which the Company may extend the lease terms from 5 to 20 years. Additionally, the Company has operating leases for certain transportation and other equipment.

The Company leases or subleases space to tenants in owned, vacated and open store facilities. Rental income is recorded when earned as a component of “Operating, general and administrative expenses.”

The following is a schedule of the lease costs included in “Operating, general and administrative expenses” for the thirteen and twenty-six weeks ended June 27, 2020 and June 29, 2019.


	13 weeks ended				26 weeks ended
(dollars in thousands)	June 27, 2020		June 29, 2019			June 27, 2020	June 29, 2019
Operating lease cost	$	11,546	$	11,415		23,050	$	23,056
Variable lease cost		2,867		2,911		5,534		5,554
Lease or sublease income		(2,133)		(1,976)		(4,170)		(3,850)
Net lease cost	$	12,280	$	12,350	$	24,414	$	24,760

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WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(8) Prior Year Reclassification

As of December 28, 2019, the Company reclassified non-service components of the Supplemental Executive Retirement Plan (SERP) benefit obligation separately from the service cost component. These non-service components totaling $2.3 million as of June 29, 2019 were reclassified to “Other income (expense)”. The Company recognizes service cost components in “Operating, general and administrative costs”.

The tables below summarize the effects of the reclassifications of previously reported Consolidated Financial Statements for the fiscal quarter ended June 27, 2020.


	13 Weeks Ended
	June 29, 2019
Consolidated Statements of Income	As Previously
(dollars in thousands)	Reported		Reclassifications		As Adjusted
Operating, general and administrative expenses	$	210,801	$	(428)	$	210,373
Income from operations		25,869		428		26,297
Other income (expense)		-		(428)		(428)


	26 Weeks Ended
	June 29, 2019
Consolidated Statements of Income	As Previously
(dollars in thousands)	Reported		Reclassifications		As Adjusted
Operating, general and administrative expenses	$	424,375	$	(2,270)	$	422,105
Income from operations		41,848		2,270		44,118
Other income (expense)		-		(2,270)		(2,270)


	26 Weeks Ended
	June 29, 2019
Consolidated Statements of Cash Flows	As Previously
(dollars in thousands)	Reported		Reclassifications		As Adjusted
Unrealized (gain) loss in SERP	$	-	$	(1,360)	$	(1,360)
Net cash provided by operating activities		78,966		(1,360)		77,606
Change in SERP investment		(3,476)		1,360		(2,116)
Net cash used in investing activities		(48,451)		1,360		(47,091)

(9) COVID-19

On March 11, 2020, the World Health Organization declared that the novel coronavirus (COVID-19) had become a pandemic, and on March 13, the U.S. President declared a National Emergency concerning the disease. Additionally, in March 2020, state governments in the Company’s geographic operating area began instituting preventative shut down measures in order to combat the novel coronavirus pandemic. The coronavirus and actions taken to mitigate the spread of it have had and are expected to continue to have an adverse impact on the economies and financial markets of the geographical area in which the Company operates. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted to amongst other provisions, provide emergency assistance for individuals, families and businesses affected by the novel coronavirus pandemic.

The Company’s business being deemed essential resulted in incremental financial performance that may not be indicative of future financial results and there remains uncertainty and increased risks concerning its employees, customers, supply chain and government regulation (see Forward-Looking Statements).

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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of Weis Markets, Inc.’s (the “Company”) financial condition and results of operations should be read in conjunction with the unaudited Consolidated Financial Statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q, the Company’s audited Consolidated Financial Statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 28, 2019, filed with the U.S. Securities and Exchange Commission, as well as the cautionary statement captioned "Forward-Looking Statements" immediately following this analysis.

Company Summary

Weis Markets is a conventional supermarket chain that operates 197 retail stores with over 24,500 associates located in Pennsylvania and six surrounding states: Delaware, Maryland, New Jersey, New York, Virginia and West Virginia. Its products include groceries, dairy products, frozen foods, meats, seafood, fresh produce, floral, pharmacy services, deli products, prepared foods, bakery products, beer and wine, fuel and general merchandise items, such as health and beauty care and household products. The store product selection includes national, local and private brands and the Company promotes by using Everyday Lower Price; Low Price Guarantee; Low, Low Price; and Loyalty programs. The Loyalty program includes fuel rewards that may be redeemed at the Company’s fuel stations or one of its third-party fuel station partners.

On March 11, 2020, the World Health Organization declared that the novel coronavirus (COVID-19) had become a pandemic, and on March 13, the U.S. President declared a National Emergency concerning the disease. Additionally, in March 2020, state governments in the Company’s geographic operating area began instituting preventative shut down measures in order to combat the novel coronavirus pandemic. The Company’s business was deemed essential and thus its stores have remained open during this time period, and sales, costs and profits have increased. Although the Company sees similar sales and profit results extending into the beginning of the next quarter, the Company is not able to speculate how the ensuing economy or unknown future related expenses will affect it after the governmental novel coronavirus pandemic measures have ended. The closure of other food sources and government stimulus payments to affected individuals have been accretive to our sales; however, the Company also faces new and increased risks concerning its employees, government regulation and supply chain (see Forward-Looking Statements, below).

The Company advertises its products and promotes its brand through radio ads; e-mail blasts; and on-line via its web site, social media and mobile applications. Printed circulars have been used extensively on a weekly basis to advertise featured items. The Company promotes by using Everyday Lower Price, Low Price Guarantee, Low, Low Price and utilizes a loyalty marketing program, “Weis Club Preferred Shopper,” which enables customers to receive discounts, promotions and in-store and fuel rewards. During the current novel coronavirus pandemic, the Company has reduced its use of weekly newspaper circulars which resulted in a cost savings. At this point the Company has not determined if its use of printed circulars will be increased after the end of the pandemic.

Utilizing its own centrally located distribution center and transportation fleet, Weis Markets self distributes approximately 67% of product with the remaining being supplied by direct store vendors. In addition, the Company has three manufacturing facilities which process milk, ice cream and fresh meat products primarily for the Company’s stores but serve other companies as well. The corporate offices are located in Sunbury, PA where the Company was founded in 1912. The Company has implemented current CDC guidelines to attempt to ensure the continuity of its distribution center and fleet.

The Company continues to innovate and remain relevant to industry trends and offering customer convenience by presenting

programs like “Weis 2 Go Online” ordering with curbside pickup and home delivery. In the second quarter of 2020, the Company offered Weis 2 Go Online curbside pickup in 177 of its locations as well as home delivery with Shipt in 175 different locations. During the first 26 weeks of 2020, ecommerce sales have increased 141% when compared to the same period in 2019.

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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

Results of Operations



Analysis of Consolidated Statements of Income
													Percentage Changes
	13 Weeks Ended						26 Weeks Ended						2020 vs. 2019			2020 vs. 2019
(dollars in thousands except per share amounts)	June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019			13 Weeks Ended			26 Weeks Ended
Net sales	$	1,098,704		$	887,967		$	2,084,524		$	1,764,686			23.7	%		18.1	%
Cost of sales, including advertising, warehousing and distribution expenses		805,816			651,297			1,527,489			1,298,463			23.7			17.6
Gross profit on sales		292,888			236,670			557,035			466,223			23.8			19.5
Gross profit margin		26.7	%		26.7	%		26.7	%		26.4	%
Operating, general and administrative expenses		236,886			210,373			463,605			422,105			12.6			9.8
O, G & A, percent of net sales		21.6	%		23.7	%		22.2	%		23.9	%
Income from operations		56,002			26,297			93,430			44,118			113.0			111.8
Operating margin		5.1	%		3.0	%		4.5	%		2.5	%
Investment income and interest expense		3,066			1,079			(953)			3,975			184.2			(124.0)
Investment income and interest expense, percent of net sales		0.3	%		0.1	%		(0.0)	%		0.2	%
Other income (expense)		(2,618)			(428)			58			(2,270)			(511.7)			102.6
Other income (expense), percent of net sales		(0.2)	%		-	%		-	%		(0.1)	%
Income before provision for income taxes		56,450			26,948			92,535			45,823			109.5			101.9
Income before provision for income taxes, percent of net sales		5.1	%		3.0	%		4.4	%		2.6	%
Provision for income taxes		14,978			6,473			24,374			11,043			131.4			120.7
Effective income tax rate		26.5	%		24.0	%		26.3	%		24.1	%
Net income	$	41,472		$	20,475		$	68,161		$	34,780			102.5	%		96.0	%
Net income, percent of net sales		3.8	%		2.3	%		3.3	%		2.0	%
Basic and diluted earnings per share	$	1.54		$	0.76		$	2.53		$	1.29			102.6	%		96.1	%

Net Sales

Analysis of Sales


	Percentage Changes
	2020 vs. 2019
June 27, 2020	13 Weeks Ended			26 Weeks Ended
Net sales		23.7	%		18.1	%
Net sales, excluding fuel sales		25.8			19.1
Comparable store sales		24.1			18.5
Comparable store sales, excluding fuel sales		26.4	%		19.7	%

When calculating the percentage change in comparable store sales, the Company defines a new store to be comparable after it has been in operation for five full quarters. Relocated stores and stores with expanded square footage are included in comparable store sales since these units are located in existing markets and are open during construction. Planned store dispositions are excluded from the calculation. The Company only includes retail food stores in the calculation.

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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

Results of Operations (continued)

Net Sales (continued)

Analysis of Sales (continued)

According to the latest U.S. Bureau of Labor Statistics’ report, the annual Seasonally Adjusted Food-at-Home Consumer Price Index increased 4.3% compared to a decrease of 0.3% for the same period last year. Even though the U.S. Bureau of Labor Statistics’ index rates may be reflective of a trend, it will not necessarily be indicative of the Company’s actual results. According to the U.S. Department of Energy, the thirteen-week average price of gasoline in the Central Atlantic States decreased 24.6% or $0.72 per gallon in the second quarter of 2020 compared to the same quarter in 2019. The year to date average decreased 12.2% or $0.34 per gallon in the first twenty-six weeks of 2020 when compared to the same period in 2019.

Comparable store sales for the second quarter of 2020 is positive compared to the same period a year ago, with increases of 24.1% with fuel and 26.4% without fuel. Year to date, comparable store sales for 2020 also remained positive when compared to the same period in 2019, with increases of 18.5% and 19.7% with and without fuel, respectively. The Company’s first and second quarter sales were favorably impacted as a result of increased sales demand related to the novel coronavirus pandemic as well as increasing market share.

Although the Company experienced retail inflation and deflation in various commodities for the periods presented, the recent novel coronavirus pandemic has caused uncertainty about future economic conditions and may change future product mix. Management cannot accurately measure the full impact of inflation or deflation on retail pricing due to changes in the types of merchandise sold between periods, shifts in customer buying patterns and the fluctuation of competitive factors. Management remains confident in its ability to generate sales growth in a highly competitive environment, but also understands some competitors have greater financial resources and could use these resources to take measures which could adversely affect the Company's competitive position.

Cost of Sales and Gross Profit

Cost of sales consists of direct product costs (net of discounts and allowances), net advertising costs, distribution center and transportation costs, as well as manufacturing facility operations. Increased sales volume resulted in an increase in cost of sales. Both direct product cost and distribution cost increase when sales volume increases.

Gross profit on sales for the second quarter of 2020 remained the same when compared to the same period in 2019. Year to date, 2020 gross profit on sales is positive when compared to the same period in 2019, with an increase of 0.3%. The increase in gross profit rate is attributable to a change in sales mix along with increased fresh department sell through, which reduced the amount of product loss.

Non-cash LIFO inventory valuation adjustments represent expense of $3.3 million in the first twenty-six weeks of 2020, compared to expense of $400 thousand in 2019. Although the Company experienced cost inflation and deflation in various commodities for the periods presented, the recent novel coronavirus pandemic has caused uncertainty about future economic conditions. Due to this uncertainty, management has estimated a greater annual increase in LIFO expense than it has in previous years due to expected product cost inflation by year end.

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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

Results of Operations (continued)

Operating, General and Administrative Expenses

The majority of the operating, general and administrative expenses are driven by sales volume.

Employee-related costs such as wages, employer paid taxes, health care benefits and retirement plans, comprise approximately 63% of the total “Operating, general and administrative expenses.” As a percent of sales, direct store labor decreased 0.2% in the second quarter of 2020 when compared to the same period in 2019, and decreased 0.5% when comparing the first twenty-six weeks of 2020 with the same period in 2019. Due to the novel coronavirus pandemic, the Company’s hiring rate has increased approximately 300% in response to the increase in demand in stores, as well as distribution needs. The Company also issued a temporary pay increase for essential employees in stores and distribution; hourly store associates are receiving $2 per hour additional wages.

Depreciation and amortization expense charged to “Operating, general and administrative expenses” was $21.7 million, or 2.0% of net sales during the second quarter of 2020 compared to $21.4 million, or 2.4% of net sales during the second quarter of 2019. During the first twenty-six weeks of 2020 and 2019, depreciation and amortization expense charged to “Operating, general and administrative expenses” was $43.4 million, or 2.1% of net sales and $42.3 million, or 2.4% of net sales, respectively. See the Liquidity and Capital Resources section for further information regarding the Company’s capital expansion program.


A breakdown of the material increases (decreases) as a percent of sales in "Operating, general and administrative expenses" is as follows:

	13 Weeks Ended
(dollars in thousands)	Increase		Increase (Decrease)
June 27, 2020	(Decrease)		as a % of sales
Wages expense		18,232	(0.7)	%
Fixed expense		1,597	(0.8)
Utilities expense		(1,114)	(0.3)


	26 Weeks Ended
(dollars in thousands)	Increase		Increase (Decrease)
June 27, 2020	(Decrease)		as a % of sales
Wages expense	$	24,067	(0.7)	%
Utilities expense		(1,370)	(0.2)
Depreciation		1,218	(0.3)

Fixed expenses include occupancy costs, depreciation and amortization and insurance expenses. Although fixed expenses have remained stable from a cost perspective, the increase in sales has caused a decrease in the percent of sales rate.

The majority of the operating, general and administrative expenses as a percent of sales presented for the second quarter and first twenty-six weeks of 2020 have benefited in comparison with the 2019 percent of sales due to the increase in sales caused by the novel coronavirus pandemic. Due to the nature of fixed expenses, management expects less variability when analyzed as a percent of sales, relative to the majority of operating, general and administrative expenses.

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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Provision for Income Taxes

The effective income tax rate was 26.3% and 24.1% for the first twenty-six weeks of 2020 and 2019, respectively. Historically, the effective income tax rate differed from the federal statutory rate, primarily due to the effect of state taxes, net of permanent differences.

Liquidity and Capital Resources

The primary source of cash is cash flows generated from operations. In addition, the Company has access to a revolving credit agreement entered into on September 1, 2016, and amended on August 21, 2019, with Wells Fargo Bank, NA (the “Credit Agreement”). The Credit Agreement matures on September 1, 2022 and provides for an unsecured revolving credit facility with an aggregate principal amount not to exceed $30.0 million with an additional discretionary amount available of $70.0 million. As of June 27, 2020, the availability under the revolving credit agreement was $24.0 million with $6.0 million of letters of credit outstanding. The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company.

The Company’s investment portfolio consists of high-grade bonds with maturity dates between one and 10 years and three long-held high yield, large capitalized public company equity securities. The portfolio totaled $97.3 million as of June 27, 2020. Management anticipates maintaining the investment portfolio but has the ability to liquidate if needed.

The Company’s capital expansion program includes the construction of new superstores, the expansion and remodeling of existing units, the acquisition of sites for future expansion, new technology purchases and the continued upgrade of the Company’s distribution facilities and transportation fleet. Management currently plans to invest approximately $86 million in its capital expansion program in 2020. However, management’s ability to complete its current plans will depend upon the governmental jurisdictions in which the Company operates and preventative shut down mandates by such jurisdictions regarding the novel coronavirus pandemic.

The Company expects that cash generated from operations and cash available under the Credit Agreement will fund its working capital requirements, debt requirements, capital expansion program, acquisitions and dividends. The Company has no other commitment of capital resources as of June 27, 2020, other than the lease commitments on its store facilities and transportation equipment under operating leases that expire at various dates through 2035.

The Board of Directors’ 2004 resolution authorizing the repurchase of up to one million shares of the Company’s common stock has a remaining balance of 752,468 shares. The Company has recently entered into a brokerage agreement with Wells Fargo Securities, LLC to facilitate possible share repurchases.

Quarterly Cash Dividends

At its regular meeting held in July, the Board of Directors unanimously approved a quarterly dividend of $0.31 per share, payable on August 10, 2020 to shareholders of record on July 27, 2020. The Company expects to continue paying regular cash dividends on a quarterly basis. However, the Board of Directors reconsiders the declaration of dividends quarterly. The Company pays these dividends at the discretion of the Board of Directors and the continuation of these payments and the amount of the dividends depends upon the results of operations, the financial condition of the Company and other factors which the Board of Directors deems relevant.

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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

Liquidity and Capital Resources (continued)

Cash Flow Information


	26 Weeks Ended
(dollars in thousands)	June 27, 2020		June 29, 2019		2020 vs. 2019
Net cash provided by (used in):
Operating activities	$	139,075	$	77,606	$	61,469
Investing activities		(80,609)		(47,091)		(33,518)
Financing activities		(16,677)		(16,677)		-

Operating

Cash flows from operating activities increased $61.5 million in the first twenty-six weeks of 2020 compared to the first twenty-six weeks of 2019. Management attributes this increase to increased sales volume resulting from the novel coronavirus pandemic. Income taxes payable increased $25.3 million due to increases in taxable income and extended payment timelines for income taxes as a result of the novel coronavirus pandemic. Sales and profit increased substantially over the same period last year, while inventory levels have decreased in both the stores and distribution center.

Investing

Property and equipment purchases during the first twenty-six weeks of 2020 totaled $49.7 million compared to $44.3 million in the first twenty-six weeks of 2019. As a percentage of sales, capital expenditures were 2.4% in the first twenty-six weeks of 2020 and 2.5% in the first twenty-six weeks of 2019. The Company increased its marketable securities portfolio during the first twenty-six weeks of 2020 and plans to maintain or increase the portfolio through the remainder of the year.

Financing

The Company paid dividends of $16.7 million in both the first twenty-six weeks of 2020 and the first twenty-six weeks of 2019. The Company has not had an obligation on the Credit Agreement since the second quarter of 2018.

Accounting Policies and Estimates

The Company has chosen accounting policies that it believes are appropriate to accurately and fairly report its operating results and financial position, and the Company applies those accounting policies in a consistent manner. The Significant Accounting Policies are summarized in Note 1 to the Consolidated Financial Statements included in the 2019 Annual Report on Form 10-K. There have been no changes to the Significant Accounting Policies since the Company filed its Annual Report on Form 10-K for the fiscal year ended December 28, 2019.

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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

In addition to historical information, this Form 10-Q Report may contain forward-looking statements, which are included pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. For example, risks and uncertainties can arise with changes in: general economic conditions, including their impact on capital expenditures; business conditions in the retail industry; the regulatory environment; rapidly changing technology and competitive factors, including increased competition with regional and national retailers; and price pressures. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in other documents the Company files periodically with the Securities and Exchange Commission.

Employees - Reduced workforces due to the temporary inability to work caused by illness, quarantine, or government mandates.

Supply Chain – Interruption in the Company’s supply chain due to having to suspend operations at its centrally located distribution center or vendors not being able to supply the Company because of their own suspended operations.

Lawsuits – Future litigation arising from issues concerning the novel coronavirus.

Future government regulation - Future laws, regulations, interpretations, administrative orders, or applications that may have an adverse impact on the Company’s operations and costs.

Customer trends – Changes in the methods in which customers procure the Company’s products.

Cyber security – Increased Cyber-attacks due to “work at home” requirements.

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WEIS MARKETS, INC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative Disclosure - There have been no material changes in the Company's market risk during the fiscal quarter ended June 27, 2020. Quantitative information is set forth in Item 7a on the Company’s Annual Report on Form 10-K under the caption “Quantitative and Qualitative Disclosures About Market Risk,” which was filed for the fiscal year ended December 28, 2019 and is incorporated herein by reference.

Qualitative Disclosure - This information is set forth in the Company's Annual Report on Form 10-K under the caption “Liquidity and Capital Resources,” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which was filed for the fiscal year ended December 28, 2019 and is incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

The Chief Executive Officer and the Chief Financial Officer, together with the Company’s Disclosure Committee, evaluated the Company’s disclosure controls and procedures as of the fiscal quarter ended June 27, 2020. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports was accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

In connection with the evaluation described above, there was no change in the Company’s internal control over financial reporting during the fiscal quarter ended June 27, 2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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WEIS MARKETS, INC.

PART II – OTHER INFORMATION

ITEM 1a. RISK FACTORS

In addition to risks and uncertainties in the ordinary course of business common to all businesses, an important update to the risk factors previously disclosed in Item 1a of Part I of our Annual Report on Form 10-K for the year ended December 28, 2019 is listed below, which could materially impact the Company’s future performance. The risk factor below and the risk factors included in our Annual Report on Form 10-K may be important to understanding statements in this Form 10-Q and should be read in conjunction with the unaudited consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.

Our business and operations, and the operations of our suppliers, have been, and may in the future be adversely affected by epidemics or pandemics such as the novel coronavirus (COVID-19) pandemic outbreak.

We may face risks related to health epidemics and pandemics or other outbreaks of communicable diseases. The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption. The Company’s business was deemed essential during the novel coronavirus pandemic and the Company is committed to maintaining a safe work and shopping environment. Management, at this time, cannot assess the ultimate economic impact to the Company, which will be determined by, among other things, the length of time that such circumstances continue, nor can the Company predict the effects of governmental and public responses to changing conditions. The risks and uncertainties surrounding the coronavirus pandemic are broad however below is a list of risks management is monitoring which could have a material impact on the Company’s business:

Employees - Reduced workforces due to the temporary inability to work caused by illness, quarantine, or government mandates.

Lawsuits – Future litigation arising from issues concerning the novel coronavirus.

Future government regulation - Future laws, regulations, interpretations, administrative orders, or applications that may have an adverse impact on the Company’s operations and costs.

Customer trends – Changes in the methods in which customers procure the Company’s products.

Cyber security – Increased Cyber-attacks due to “work at home” requirements.

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WEIS MARKETS, INC.

ITEM 6. EXHIBITS

Exhibits


	Exhibit 31.1 Rule a-14(a) Certification - CEO
	Exhibit 31.2 Rule 13a-14(a) Certification - CFO
	Exhibit 32 Certification Pursuant to 18 U.S.C. Section 1350

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WEIS MARKETS, INC.

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.


		WEIS MARKETS, INC.
		(Registrant)

Date:	8/5/2020	/S/Jonathan H. Weis
		Jonathan H. Weis
		Chairman,
		President and Chief Executive Officer
		(Principal Executive Officer)

Date:	8/5/2020	/S/Scott F. Frost
		Scott F. Frost
		Senior Vice President, Chief Financial Officer
		and Treasurer
		(Principal Financial Officer)