Village Super Market, Inc. (the “Company” or “Village”) was founded in 1937. Village operates a chain of 29 ShopRite34 supermarkets in New Jersey (26), New York (6), Maryland (1) and northeastern Pennsylvania.Pennsylvania (1) under the ShopRite and Fairway banners and four Gourmet Garage specialty markets in New York City. Village is the second largest member of Wakefern Food Corporation (“Wakefern”), the nation’s largest retailer-owned food cooperative and owner of the ShopRite, name.Fairway 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, private label products, advanced retail technology, marketing and advertising associated with chains of greater size and geographic coverage.
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. VillageThe Company competes by using low pricing, providing a superior customer service experience, competitive pricing and a broad range of consistently available quality products (including ShopRite private labeled products).products. The ShopRite Price Plus preferred customer loyalty 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.
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.
RESULTS OF OPERATIONS
The following table sets forth the major components of the Consolidated Statements of Operations as a percentage of sales:
| | | | | | | | | | | | | | | |
| 13 Weeks Ended | | |
| October 29, 2022 | | October 30, 2021 | | | | |
Sales | 100.00 | % | | 100.00 | % | | | | |
Cost of sales | 71.27 | | | 71.64 | | | | | |
Gross profit | 28.73 | | | 28.36 | | | | | |
Operating and administrative expense | 24.16 | | | 24.54 | | | | | |
Depreciation and amortization | 1.65 | | | 1.68 | | | | | |
Operating income | 2.92 | | | 2.14 | | | | | |
| | | | | | | |
Interest expense | (0.21) | | | (0.20) | | | | | |
Interest income | 0.38 | | | 0.20 | | | | | |
Income before income taxes | 3.09 | | | 2.14 | | | | | |
Income taxes | 0.96 | | | 0.66 | | | | | |
Net income | 2.13 | % | | 1.48 | % | | | | |
|
| | | | | | | | | | | |
| 13 Weeks Ended | | 26 Weeks Ended |
| January 27, 2018 | | January 28, 2017 | | January 27, 2018 | | January 28, 2017 |
Sales | 100.00 | % | | 100.00 | % | | 100.00 | % | | 100.00 | % |
Cost of sales | 73.10 |
| | 73.01 |
| | 73.11 |
| | 73.08 |
|
Gross profit | 26.90 |
| | 26.99 |
| | 26.89 |
| | 26.92 |
|
Operating and administrative expense | 23.02 |
| | 22.90 |
| | 23.43 |
| | 23.14 |
|
Depreciation and amortization | 1.53 |
| | 1.52 |
| | 1.57 |
| | 1.53 |
|
Operating income | 2.35 |
| | 2.57 |
| | 1.89 |
| | 2.25 |
|
Interest expense | (0.26 | ) | | (0.27 | ) | | (0.27 | ) | | (0.28 | ) |
Interest income | 0.21 |
| | 0.16 |
| | 0.22 |
| | 0.17 |
|
Income before taxes | 2.30 |
| | 2.46 |
| | 1.84 |
| | 2.14 |
|
Income taxes | 0.02 |
| | 1.01 |
| | 0.28 |
| | 0.88 |
|
Net income | 2.28 | % | | 1.45 | % | | 1.56 | % | | 1.26 | % |
Sales. Sales were $417,382$519,689 in the second quarter of fiscal 2018,13 weeks ended October 29, 2022, an increase of 1.3%5.2% compared to the second quarter13 weeks ended October 30, 2021. Sales increased due to an increase in same store sales of 4.3%, the opening of a Gourmet Garage in the West Village in Manhattan, NY on April 29, 2022 and increased sales due to the remodel and conversion of the prior year.Pelham, NY Fairway to the ShopRite banner on August 15, 2022. Same store sales increased due primarily to sales growth in recently remodeled and expanded stores in Chester and Stirling, inflation and increased promotional spending. These increases were partially offset by two competitor store openings. The Company expects same store sales in fiscal 2018 to range from a 0.5% decrease to a 0.5% increase.retail price inflation. New stores, and replacement stores and stores with banner changes 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.
Sales were $803,856 in the six-month period of fiscal 2018, an increase of 0.2% from the six-month period of the prior year. Same store sales increased 0.2% due primarily to sales growth in recently remodeled and expanded stores in Chester and Stirling, inflation and increased promotional spending. These increases were partially offset by four competitor store openings.
Although the Company cannot accurately determine the precise impact of inflation or deflation on operations due to changes in product mix, customer buying patterns and competitive factors, we estimate that product prices experienced moderate inflation during the second quarter and six-month period of fiscal 2018 across all selling departments other than pharmacy, which continued to experience deflation.
Gross Profit. Gross profit as a percentage of sales decreased .09%increased .37% in the second quarter of fiscal 201813 weeks ended October 29, 2022 compared to the second quarter of the prior year13 weeks ended October 30, 2021 due primarily due to decreased patronage dividends from Wakefern (.07%), increased promotional spending (.05%) and decreased departmental gross margin percentages (.11%(.17%), decreased warehouse assessment charges from Wakefern (.21%) partially offset bydue primarily to sales leverage, a favorable change in product mix (.12%(.07%).
Gross profit as a percentage of sales decreased .03% in the six-month period of fiscal 2018 compared to the six-month period of the prior year primarily due to and lower promotional spending (.06%), partially offset by higher LIFO charges (.05%) and decreased patronage dividends and rebates received from Wakefern (.04%) and increased promotional spending (.09%) partially offset by a favorable change in product mix (.12%(.10%).
Operating and Administrative Expense.Expense. Operating and administrative expense as a percentage of sales increased .12%decreased .38% in the second quarter of fiscal 201813 weeks ended October 29, 2022 compared to the second quarter of the prior year13 weeks ended October 30, 2021 due primarily to payroll investments in service departments, traininglower labor costs and other initiativesfringe benefits (.21%).
Operating and administrative expense as a percentage of sales increased .29% in the six-monthperiod of fiscal 2018 compared to the six-monthperiod of the prior year primarilydecreased supply spending (.15%). Labor costs and fringe benefits decreased due primarily to payroll investments in service departments, trainingongoing productivity initiatives and other initiatives (.32%).sales leverage partially offset by minimum wage and market-driven pay rate increases.
Depreciation and Amortization. Depreciation and amortization expense increased in the second quarter and six-month period of fiscal 201813 weeks ended October 29, 2022 compared to the corresponding periods of the prior year13 weeks ended October 30, 2021 due primarily to depreciation related to fixed asset additions.capital expenditures.
Interest Expense. Interest expense increased in the second quarter and six-month period of fiscal 2018 was flat13 weeks ended October 29, 2022 compared to the corresponding period of13 weeks ended October 30, 2021 due primarily to interest related to the prior year.$10,000 unsecured term loan executed on September 1, 2022.
Interest Income. Interest income increased in the second quarter and six-month period of fiscal 201813 weeks ended October 29, 2022 compared to the corresponding period of the prior year13 weeks ended October 30, 2021 due primarily to higher interest rates and larger amounts invested and higher interest rates earned onin variable rate notes receivable from Wakefern and demand deposits at Wakefern.
Income Taxes. The effective income tax rate was .9%31.0% in the second quarter of fiscal 201813 weeks ended October 29, 2022 compared to 40.9%30.7% in the second quarter of13 weeks ended October 30, 2021. The increase in the prior year. The effective income tax rate is due primarily to greater apportionment in higher state tax rate jurisdictions.
Net Income. Net Income was 15.0%$11,081 in the six-month period of fiscal 201813 weeks ended October 29, 2022 compared to 41.2%net income of $7,328 in the six-month period of the prior year.
The effective tax rate was impacted by the Tax Cuts and Jobs Act (the "Tax Act") enacted on December 22, 2017. The Tax Act makes significant changes13 weeks ended October 30, 2021. Net income increased 51% due primarily to the U.S tax code that will affect our fiscal year ended July 28, 2018, including, but not limited to, reducing the U.S. federal statutory tax rate from 35% to 21% effective January 1, 20184.3% increase in same store sales, higher gross profit margins and bonus depreciation that will allow for full expensing of qualified property.
For the fiscal year ended July 28, 2018 the Company will have a blended federal corporate tax rate of 26.9% based on the effective date of the tax rate reduction. As a result of the decrease in the federal rate, the Company recognized a decrease in its net deferred tax liabilities of $2,726 in the second quarter of fiscal 2018, with a corresponding reduction to deferred income tax expense. Excluding the impact of the adjustment to deferred tax expense, the effective income tax rates were 29.3% and 33.5% in the second quarter and six-month period of fiscal 2018, respectively.
Net Income. Net income was $9,511 in the second quarter of fiscal 2018 compared to $5,992 in the second quarter of the prior year. The second quarter of fiscal 2018 includes a $2,726 non-cash reduction in deferred tax expense as a result of the Tax Act. Excluding this item from the second quarter of fiscal 2018, net income increased 13% in the second quarter of fiscal 2018 compared to the prior year primarily due to the favorable impact of a reduction in the fiscal 2018 estimated effective tax rate to 33.5% as a result of the Tax Act.
Net income was $12,528 in the six-month period of fiscal 2018 compared to $10,101 in the six-month period of the prior year. Fiscal 2018 includes a $2,726 non-cash reduction in deferred tax expense as a result of the Tax Act. Excluding this item, net income decreased 3% in the six-month period of fiscal 2018 compared to the prior year primarily due to higherlower operating and administrative expenses partially offset by the favorable impact of a reduction in the fiscal 2018 estimated effective tax rate to 33.5% as a result of the Tax Act.expenses.
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 goodwill,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 30, 2022. As of October 29, 2017. As no material uncertain tax positions remain in the Company’s financial condition and results of operations, the Company has updated its critical accounting policies to exclude accounting for uncertain tax positions. As of January 27, 2018,2022, there have been no other 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 $28,424$22,019 in the six-monthperiod of fiscal 201813 weeks ended October 29, 2022 compared to $15,146$7,887 in the corresponding period of the prior year. The increasechange in net cash provided byflows from operating activities in fiscal 20182023 was primarily due to changes in working capital and higher net income adjusted for non-cash expenses including depreciation and amortization, share-based compensation and deferred taxes.items. Working capital changes, including Other assets and Other liabilities, increased net cash provided
by operating activities in fiscal 2018 by $3,775 and decreased net cash provided byflows from operating activities by $8,645$756 in fiscal 2017.2023 compared to a decrease of $8,281 in fiscal 2022. The largerchange in impact of working capital changes in fiscal 2017 is due primarily to changes in income taxes receivable/payable as a result of the timing of estimated tax payments.payments, accounts payable and accrued expenses.
During the six-monthperiod of fiscal 2018,13 weeks ended October 29, 2022, Village used cash to fund capital expenditures of $12,731,$9,813, dividends of $6,439$3,252, principal payments of long-term debt of $2,352, an investment in a real estate partnership for the development of a retail center in Old Bridge, New Jersey of $1,276 and invested an additional $1,051net investments of $30,917 in notes receivable from Wakefern, net of proceeds received on matured notes.Wakefern. Capital expenditures primarily include costs associated with the remodel and conversion of the Pelham, NY Fairway to the ShopRite banner, the new Gourmet Garage store in the West Village of New York City, continued expansion of self-checkout, and various merchandising, technology, equipment and facility upgrades.
We expect capital expenditures to approximate $70,000 in fiscal 2023. Planned expenditures include costs for construction of three replacement stores scheduled to open in fiscal 2024, two major remodels, including the conversion of the Pelham, NY store from the Fairway to the ShopRite banner, the purchase of the Vineland store shopping center, several smaller remodels.store remodels and merchandising initiatives, installation of electronic shelf labels in six stores, continued expansion of self-checkout, and various technology, equipment and facility upgrades. The Company’s primary sources of liquidity in fiscal 2023 are expected to be cash and cash equivalents on hand at October 29, 2022 and operating cash flow generated in fiscal 2023.
At January 27, 2018,On April 28, 2022 the Company had $45,731entered into a partnership agreement for 30% interest in variable rate notes receivable due from Wakefern that earn interest at the prime rate plus $1.25%development of a retail center in Old Bridge, New Jersey, which includes a Village replacement store with $23,265 that maturefuture lease obligations of $18,948. Village will fund its share of project costs estimated to be $15,000 to $20,000 over the two to three year life of the project. As of October 29, 2022, Village has invested $6,286 into the real estate partnership, which is accounted for as an equity method investment included in Investments in Real Estate Partnerships on February 15, 2019 and $22,466 that mature on August 15, 2022. the Consolidated Balance Sheet.
On August 15, 2017,2022, notes receivable due from Wakefern of $22,142$28,850 that earned interest at the prime rate plus .25%1.25% matured. The Company invested $22,000all of the proceeds received in variable rate notes receivable from Wakefern that earn interest at the prime rate plus .50% and mature on August 15, 2022.2027. On September 28, 2022, the Company invested an additional $30,000 in variable rate notes receivable from Wakefern that earn interest at the prime rate plus .50% and mature on September 28, 2027. At October 29, 2022, the Company held variable rate notes receivable due from Wakefern of $29,606 that earn interest at the prime rate plus .75% and mature on February 15, 2024, $29,078 that earn interest at the prime rate plus .50% and mature on August 15, 2027 and $30,017 that earn interest at the prime rate plus .50% and mature on September 28, 2027. 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.
Village has revised its budgeted capital expenditures downward from prior estimates to approximately $30,000 for fiscal 2018 due to delays in the timing of certain projects. Planned expenditures include construction of a new store in the Bronx, New York, two major remodels, several smaller remodels and various technology upgrade projects. The Company’s primary sources of liquidity in fiscal 2018 are expected to be cash and cash equivalents on hand at January 27, 2018, operating cash flow generated in fiscal 2018 and funding through the New Markets Tax Credit program as described in note 8 to the unaudited consolidated financial statements.
Working capital was $59,888$31,059 at January 27, 2018October 29, 2022 compared to $85,279$79,796 at July 29, 2017.30, 2022. Working capital ratios at the same dates were 1.611.18 and 1.891.50 to 1,one, respectively. The decrease in working capital in fiscal 20182023 compared to fiscal 20172022 is due primarily to maturity of $22,142$28,850 in notes receivable from Wakefern of which $22,000 wasthat matured on August 15, 2022 and were reinvested in long-term
notes receivable from Wakefern and an additional $30,017 investment in long-term notes receivable from Wakefern. The Company’s working capital needs are reduced, since inventories are generally sold by the time payments to Wakefern and other suppliers are due.
Effective November 9, 2017,Credit Facility
The Company has a $150,500 credit facility (the “Credit Facility”) with Wells Fargo National Bank, National Association (“Wells Fargo”). The principal purpose of the Company entered into a credit agreement that amends, restatesCredit Facility is to finance general corporate and supersedes in its entiretyworking capital requirements, Village’s acquisition of certain Fairway assets, the loan agreement dated September 16, 1999purchase of the Galloway store shopping center and all amendments to that agreement. The agreement maintains Village'scertain capital expenditure projects. Among other things, the Credit Facility provides for:
•An unsecured revolving line of credit providing a maximum amount available for borrowing of $25,000, and extends the credit agreement to December 31, 2020. The revolving credit line can be used for general corporate purposes.$75,000. Indebtedness under this agreement bears interest at the applicable LIBORSecured Overnight Financing Rate ("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%. An interest rate swap with notional amounts equal to the term loan 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 1.25%1.61%. An interest rate swap with notional amounts equal to the term loan 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 credit agreement continuesterm 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%. An interest rate swap with notional amounts equal to providethe term loan fixes the base SOFR at 1.41% per annum through January 28, 2037, 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.
On September 1, 2022, the Company amended the Credit Facility due to the execution of a seven year $10,000 unsecured term loan. The unsecured term loan is repayable in equal monthly installments based on a seven year amortization schedule through September 4, 2029 and bears interest at the applicable SOFR plus 1.35%. Village also executed an interest rate swap for upa notional amount equal to $3,000the term loan amount that fixes the base SOFR at 2.95%, resulting in a fixed effective rate of letters4.30%. This loan qualified for an interest rate subsidy program with Wakefern on financing related to certain capital expenditure projects. Net of credit, which secure obligationsthe subsidy, the Company will pay interest at a fixed effective rate of 2.30%.
Based on current trends, the Company believes cash and cash equivalents on hand at October 29, 2022, operating cash flow and availability under our Credit Facility are sufficient to meet our liquidity needs for construction performance guarantees to municipalities. The credit agreement continues to contain covenants that, among other conditions, require a maximum liabilities to tangible net worth ratio, a minimum fixed charge coverage ratiothe next twelve months and a positive net income. There were no amounts outstanding at January 27, 2018 or July 29, 2017 underfor the new or superseded facility, respectively.foreseeable future beyond the next twelve months.
There have been no other substantial changes as of January 27, 2018October 29, 2022 to the contractual obligations and commitments discussed in the Company’s Annual Report on Form 10-K for the year ended July 29, 2017.
30, 2022.
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.
•We expect the increase in same store sales to range from a decrease of 0.5%1.0% to an increase of 0.5%3.0% in fiscal 2018. We expect sales trends to be negatively impacted by several local competitor store openings.2023.
•We have revised budgeted $70,000 for capital expenditures downward from prior estimates to approximately $30,000 forin fiscal 2018 due to delays in the timing of certain projects.2023. Planned expenditures include costs for construction of a new storethree replacement stores scheduled to open in the Bronx, New York,fiscal 2024, two major remodels, including the conversion of the Pelham, NY store from the Fairway to the ShopRite banner, the purchase of the Vineland store shopping center, several smaller store remodels and merchandising initiatives, installation of electronic shelf labels in six stores, continued expansion of self-checkout, and various technology, upgrade projects.equipment and facility upgrades.
•The Board’s current intention is to continue to pay quarterly dividends in 20182023 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 from operations and other sources of liquiditythe 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 20182023 to be in the range of 33.0%31.0% - 34.0%32.0%.
We expect operating expenses will be affected by increased costs in certain areas, such as medical and other fringe benefit costs.
We expect approximately $100 of net periodic pension costs in fiscal 2018 related to the four Company sponsored defined benefit pension plans. The Company expects to contribute $3,500 in cash to all defined benefit pension plans in fiscal 2018.
Various uncertainties and other factors could cause actual results to differ from the forward-looking statements contained in this report. These include:
•The COVID-19 pandemic created significant volatility and uncertainty in our business since the first outbreak in our trade area in March 2020. Its continuing impact and the impact of new virus variants and the measures taken in response could adversely impact our business, financial condition and results of operations. We continue to monitor and adjust the safety measures we have implemented since the beginning of the pandemic. Our business may be affected by uncertain or changing economic and market conditions arising in connection with and in response to the COVID-19 pandemic, including labor shortages, inflation, disruptions to supply chains, higher operating and/or compliance costs, changes in customer trends and consumer demand, changes in federal, state and local laws, regulations and community response measures, the form and impact of economic stimulus, our customers access to and the continued availability of government benefit programs through the Supplemental Nutrition Assistance Program ("SNAP") and general overall economic instability. It is unclear whether and to what extent sales, consumer behavior, general economic and business activity will return to pre-pandemic levels and its impact on our business. 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 in Manhattan due primarily to less residential, 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, with two stores in MarylandNew York, Pennsylvania and one in northeastern Pennsylvania.Maryland. We are vulnerable to economic downturns in New Jerseythese 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, workers' compensation, 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 91%88% of our employees are covered by collective bargaining agreements. Any work stoppages could have an adverse impact on our financial results. If we are unable to control health care and pension costs provided for in the collective bargaining agreements, we may experience increased operating costs.
•The Company could be adversely affected if consumers lose confidence in the safety and quality of the food supply chain. The real or perceived sale of contaminated food products by us could result in a loss of consumer confidence and product liability claims, which could have a material adverse effect on our sales and operations.
•Certain of the multi-employer plans to which we contribute are underfunded. As a result, we expect that contributions to these plans may increase. Additionally, the benefit levels and related items will be issues in the negotiation of our collective bargaining agreements. Under current law, an employer that withdraws or partially withdraws from a multi-employer pension plan may incur a withdrawal liability to the plan, which represents the portion of the plan’s underfunding that is allocable to the withdrawing employer under very complex actuarial and allocation rules. The failure of a withdrawing employer to fund these obligations can impact remaining employers. The amount of any increase or decrease in our required contributions to these multi-employer pension plans will depend upon the outcome of collective bargaining, actions taken by trustees who manage the plans, government regulations, withdrawals by other participating employers and the actual return on assets held in the plans, among other factors.
•The Company uses a combination of insurance and self-insurance to provide for potential liability for workers’ compensation, automobile, and general liability, property, director and officers’ liability, and certain employee health care benefits. Any projection of losses is subject to a high degree of variability. Changes in legal claims, trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, and insolvency of insurance carriers could all affect our financial condition, results of operations, or cash flows.
•Our long-lived assets, primarily store property, equipment and fixtures, are subject to periodic testing for impairment. Failure of our asset groups to achieve sufficient levels of cash flow could result in impairment charges on long-lived assets.
•Our goodwill and indefinite-lived intangible assets are tested at the end of each fiscal year, or more frequently if circumstances dictate, for impairment. Failure of acquired businesses to achieve their forecasted expectations could result in impairment charges to goodwill and indefinite-lived intangible assets.
•Our effective tax rate may be impacted by the results of tax examinations and changes in tax laws.
•Wakefern provides all members of the cooperative with information system support that enables us to effectively manage our business data, customer transactions, ordering, communications and other business processes. These information systems are subject to damage or interruption from power outages, computer or telecommunications failures, computer viruses and related malicious software, catastrophic weather events, or human error. Any material interruption of our or Wakefern’s information systems could have a material adverse impact on our results of operations.
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.
RELATED PARTY TRANSACTIONS
See note 5 to the unaudited consolidated financial statements for information on related party transactions.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company expects to adopt the new standard in the first quarter of its fiscal year ending July 27, 2019. The Company does not anticipate it will have a material impact on its recognition of revenue at the point of sale, and is continuing to identify and assess transactions that may be affected by the new standard.
In February 2016, the FASB issued ASU 2016-02, "Leases." This guidance requires lessees to recognize lease liabilities and a right-of-use asset for all leases with terms of more than 12 months on the balance sheet. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with earlier adoption permitted. The Company expects to adopt the new standard in the first quarter of its fiscal year ending July 25, 2020. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after the date of initial adoption. The adoption of ASU 2016-02 will result in a significant increase to the Company’s Consolidated Balance Sheets for lease liabilities and right-of-use assets, and the Company is currently evaluating the other effects of adoption of this standard on its consolidated financial statements and related disclosures.
In February 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which will allow a reclassification from accumulated other comprehensive income to retained earnings for the tax effects resulting from the Tax Act that are stranded in accumulated other comprehensive income. This standard also requires certain disclosures about stranded tax effects. This ASU, however, does not change the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations. The new guidance is effective for the first interim and annual periods beginning after December 15, 2018, with early adoption permitted. It must be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. The Company is currently evaluating the effects of adoption of this standard on its consolidated financial statements and related disclosures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At January 27, 2018, the Company had demand deposits of $69,619 at Wakefern earning interest at overnight money market rates, which are exposed to the impact of interest rate changes.Not applicable.
At January 27, 2018, the Company had $45,731 in notes receivable due from Wakefern that earn interest at the prime rate plus $1.25% with $23,265 that mature on February 15, 2019 and $22,466 that mature on August 15, 2022. 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.
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 27, 2018October 29, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 2C. ISSUER PURCHASES OF EQUITY SECURITIES
The number and average price of shares purchased in each fiscal month of the second quarter of fiscal 2018 are set forth in the table below:
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Period(1) | | Total Number of Shares Purchased(2) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plan or Programs |
October 29, 2017 to November 25, 2017 | | — | | $— | | — | | $2,008,972 |
November 26, 2017 to December 23, 2017 | | 8,893 | | $23.02 | | 8,893 | | $1,804,255 |
December 24, 2017 to January 27, 2018 | | 11,845 | | $23.02 | | 11,845 | | $1,531,583 |
Total | | 20,738 | | $23.02 | | 20,738 | | $1,531,583 |
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(1) ITEM 6. EXHIBITS | The reported periods conform to our fiscal calendar. |
(2) Includes shares repurchased under a $5.0 million repurchase program of the Company's Class A Common Stock authorized by the Board of Directors and announced on June 12, 2015. Repurchases may be made from time-to-time through a variety of methods, including open market purchases and other negotiated transactions, including through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934.
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Item 6.
| Exhibits |
Exhibit 31.1 | | |
Exhibit 31.131.2 | | |
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Exhibit 31.232.1 | |
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Exhibit 32.1 | | |
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Exhibit 32.2 | | |
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Exhibit 99.1 | | |
101 INS | XBRL Instance | |
101 INSSCH | XBRL InstanceSchema | |
101 CAL | XBRL Calculation | |
101 SCHDEF | XBRL SchemaDefinition | |
101 LAB | XBRL Label | |
101 CAL | XBRL Calculation |
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101 DEF | XBRL Definition |
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101 LAB | XBRL Label |
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101 PRE | XBRL Presentation | |
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.
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| Village Super Market, Inc. |
| Registrant |
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Dated: March 8, 2018December 7, 2022 | /s/ Robert P. Sumas |
| Robert P. Sumas |
| (Chief Executive Officer) |
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Dated: March 8, 2018December 7, 2022 | /s/ John Van Orden |
| John Van Orden |
| (Chief Financial Officer) |