UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
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| For the quarterly period ended April 24,October 30, 2021 |
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OR |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
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Commission File No. 0-2633 |
VILLAGE SUPER MARKET, INC.
(Exact name of registrant as specified in its charter)
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New Jersey | | 22-1576170 | | | | |
(State or other jurisdiction of incorporation or organization) | | (I. R. S. Employer Identification No.) | | | | |
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733 Mountain Avenue, Springfield, New Jersey, 07081 | | | | |
(Address of principal executive offices) (Zip Code) | | | | |
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Registrant's telephone number, including area code: | (973) 467-2200 | | | | |
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Securities registered pursuant to Section 12(b) of the Act: | | | |
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Class A common stock, no par value | VLGEA | The NASDAQ Stock Market | | | | |
(Title of Class) | (Trading Symbol) | (Name of exchange on which registered) | | | | |
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Securities registered pursuant to Section 12(g) of the Act: None | | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12-b2 of the Exchange Act.
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Large accelerated filer ☐ | Accelerated filer ☒ |
Non-accelerated filer ☐ (Do not check if a smaller reporting company) | Smaller reporting company ☒ |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒. |
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Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: |
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| | June 3,December 8, 2021 |
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| Class A Common Stock, No Par Value | 10,259,08810,256,904 Shares |
| Class B Common Stock, No Par Value | 4,293,748 Shares |
VILLAGE SUPER MARKET, INC.
INDEX
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PART I | PAGE NO. |
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FINANCIAL INFORMATION | |
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Item 1. Financial Statements (Unaudited) | |
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Consolidated Balance Sheets | |
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Consolidated Statements of Operations | |
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Consolidated Statements of Comprehensive Income | |
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Consolidated Statements of Shareholders' Equity | |
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Consolidated Statements of Cash Flows | |
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Notes to Consolidated Financial Statements | |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | |
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Item 3. Quantitative & Qualitative Disclosures about Market Risk | |
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Item 4. Controls and Procedures | |
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PART II | |
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OTHER INFORMATION | |
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Item 6. Exhibits | |
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Signatures | |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
| VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) | VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) | VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) |
| | April 24, 2021 | | July 25, 2020 | | October 30, 2021 | | July 31, 2021 |
ASSETS | ASSETS | | | | ASSETS | | | |
Current assets | Current assets | | | | Current assets | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 112,677 | | | $ | 111,681 | | Cash and cash equivalents | $ | 105,087 | | | $ | 116,314 | |
Merchandise inventories | Merchandise inventories | 44,972 | | | 42,135 | | Merchandise inventories | 46,021 | | | 42,633 | |
Patronage dividend receivable | Patronage dividend receivable | 7,740 | | | 11,204 | | Patronage dividend receivable | 16,501 | | | 11,860 | |
| Notes receivable from Wakefern | | Notes receivable from Wakefern | 27,635 | | | — | |
| Income taxes receivable | Income taxes receivable | 8,190 | | | 12,801 | | Income taxes receivable | 5,286 | | | 5,111 | |
Other current assets | Other current assets | 19,803 | | | 19,499 | | Other current assets | 21,885 | | | 20,398 | |
Total current assets | Total current assets | 193,382 | | | 197,320 | | Total current assets | 222,415 | | | 196,316 | |
| Property, equipment and fixtures, net | Property, equipment and fixtures, net | 255,648 | | | 269,741 | | Property, equipment and fixtures, net | 261,309 | | | 256,154 | |
Operating lease assets | Operating lease assets | 297,256 | | | 309,756 | | Operating lease assets | 282,483 | | | 289,461 | |
Notes receivable from Wakefern | Notes receivable from Wakefern | 54,716 | | | 53,008 | | Notes receivable from Wakefern | 28,252 | | | 55,295 | |
Investment in Wakefern | Investment in Wakefern | 30,483 | | | 29,462 | | Investment in Wakefern | 33,004 | | | 33,004 | |
Goodwill | Goodwill | 24,190 | | | 24,190 | | Goodwill | 24,190 | | | 24,190 | |
Other assets | Other assets | 34,403 | | | 32,069 | | Other assets | 36,373 | | | 34,584 | |
| Total assets | Total assets | $ | 890,078 | | | $ | 915,546 | | Total assets | $ | 888,026 | | | $ | 889,004 | |
LIABILITIES and SHAREHOLDERS' EQUITY | LIABILITIES and SHAREHOLDERS' EQUITY | | | | LIABILITIES and SHAREHOLDERS' EQUITY | | | |
Current liabilities | Current liabilities | | Current liabilities | |
Operating lease obligations | Operating lease obligations | $ | 21,199 | | | $ | 19,121 | | Operating lease obligations | $ | 21,667 | | | $ | 21,627 | |
Finance lease obligations | Finance lease obligations | 515 | | | 466 | | Finance lease obligations | 547 | | | 531 | |
Notes payable to Wakefern | Notes payable to Wakefern | 521 | | | 303 | | Notes payable to Wakefern | 629 | | | 632 | |
Current portion of debt | Current portion of debt | 6,976 | | | 6,421 | | Current portion of debt | 6,976 | | | 6,976 | |
Accounts payable to Wakefern | Accounts payable to Wakefern | 75,626 | | | 83,045 | | Accounts payable to Wakefern | 76,959 | | | 70,792 | |
Accounts payable and accrued expenses | Accounts payable and accrued expenses | 24,705 | | | 29,793 | | Accounts payable and accrued expenses | 23,441 | | | 25,098 | |
Accrued wages and benefits | Accrued wages and benefits | 23,147 | | | 23,649 | | Accrued wages and benefits | 23,272 | | | 25,036 | |
| Income taxes payable | | Income taxes payable | 566 | | | 1,601 | |
Total current liabilities | Total current liabilities | 152,689 | | | 162,798 | | Total current liabilities | 154,057 | | | 152,293 | |
Long-term debt | Long-term debt | | | | Long-term debt | | | |
Operating lease obligations | Operating lease obligations | 285,883 | | | 298,027 | | Operating lease obligations | 271,500 | | | 278,135 | |
Finance lease obligations | Finance lease obligations | 22,518 | | | 23,078 | | Finance lease obligations | 22,127 | | | 22,325 | |
Notes payable to Wakefern | Notes payable to Wakefern | 413 | | | 882 | | Notes payable to Wakefern | 2,721 | | | 2,791 | |
Long-term debt | Long-term debt | 68,614 | | | 74,194 | | Long-term debt | 65,041 | | | 66,827 | |
Total long-term debt | Total long-term debt | 377,428 | | | 396,181 | | Total long-term debt | 361,389 | | | 370,078 | |
Pension liabilities | Pension liabilities | 6,146 | | | 6,166 | | Pension liabilities | 10,240 | | | 10,182 | |
Other liabilities | Other liabilities | 16,547 | | | 18,081 | | Other liabilities | 15,369 | | | 14,978 | |
Commitments and contingencies | Commitments and contingencies | 0 | | 0 | Commitments and contingencies | 0 | | 0 |
Shareholders' equity | Shareholders' equity | | | | Shareholders' equity | | | |
Preferred stock, no par value: Authorized 10,000 shares, NaN issued | 0 | | | 0 | | |
Class A common stock, no par value: Authorized 20,000 shares; issued 10,985 shares at April 24, 2021 and July 25, 2020 | 69,964 | | | 68,072 | | |
Class B common stock, no par value: Authorized 20,000 shares; issued and outstanding 4,294 shares at April 24, 2021 and July 25, 2020 | 697 | | | 697 | | |
Preferred stock, no par value: Authorized 10,000 shares, none issued | | Preferred stock, no par value: Authorized 10,000 shares, none issued | — | | | — | |
Class A common stock, no par value: Authorized 20,000 shares; issued 10,987 shares at October 30, 2021 and 10,978 shares at July 31, 2021 | | Class A common stock, no par value: Authorized 20,000 shares; issued 10,987 shares at October 30, 2021 and 10,978 shares at July 31, 2021 | 71,238 | | | 70,594 | |
Class B common stock, no par value: Authorized 20,000 shares; issued and outstanding 4,294 shares at October 30, 2021 and July 31, 2021 | | Class B common stock, no par value: Authorized 20,000 shares; issued and outstanding 4,294 shares at October 30, 2021 and July 31, 2021 | 697 | | | 697 | |
Retained earnings | Retained earnings | 286,946 | | | 286,241 | | Retained earnings | 297,249 | | | 293,185 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (6,400) | | | (8,751) | | Accumulated other comprehensive loss | (8,185) | | | (9,064) | |
Less treasury stock, Class A, at cost: 726 shares at April 24, 2021 and July 25, 2020 | (13,939) | | | (13,939) | | |
Less treasury stock, Class A, at cost: 730 shares at October 30, 2021 and 726 shares at July 31, 2021 | | Less treasury stock, Class A, at cost: 730 shares at October 30, 2021 and 726 shares at July 31, 2021 | (14,028) | | | (13,939) | |
Total shareholders’ equity | Total shareholders’ equity | 337,268 | | | 332,320 | | Total shareholders’ equity | 346,971 | | | 341,473 | |
| Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | $ | 890,078 | | | $ | 915,546 | | Total liabilities and shareholders’ equity | $ | 888,026 | | | $ | 889,004 | |
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See notes to consolidated financial statements.
| VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) | VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) | VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) |
| | 13 Weeks Ended | | 39 Weeks Ended | | | 13 Weeks Ended |
| | April 24, 2021 | | April 25, 2020 | | April 24, 2021 | | April 25, 2020 | | | October 30, 2021 | | October 24, 2020 |
Sales | Sales | $ | 481,093 | | | $ | 458,292 | | | $ | 1,494,047 | | | $ | 1,303,116 | | Sales | | $ | 494,211 | | | $ | 490,136 | |
| Cost of sales | Cost of sales | 347,671 | | | 328,391 | | | 1,080,817 | | | 941,722 | | Cost of sales | | 354,031 | | | 352,173 | |
| Gross profit | Gross profit | 133,422 | | | 129,901 | | | 413,230 | | | 361,394 | | Gross profit | | 140,180 | | | 137,963 | |
| Operating and administrative expense | Operating and administrative expense | 121,156 | | | 106,987 | | | 371,968 | | | 317,861 | | Operating and administrative expense | | 121,283 | | | 124,363 | |
| Depreciation and amortization | Depreciation and amortization | 8,418 | | | 7,678 | | | 25,925 | | | 22,914 | | Depreciation and amortization | | 8,335 | | | 8,714 | |
| Operating income | Operating income | 3,848 | | | 15,236 | | | 15,337 | | | 20,619 | | Operating income | | 10,562 | | | 4,886 | |
| | Interest expense | Interest expense | (994) | | | (563) | | | (2,963) | | | (1,698) | | Interest expense | | (970) | | | (987) | |
| Interest income | Interest income | 904 | | | 910 | | | 2,670 | | | 3,199 | | Interest income | | 976 | | | 891 | |
| Income before income taxes | Income before income taxes | 3,758 | | | 15,583 | | | 15,044 | | | 22,120 | | Income before income taxes | | 10,568 | | | 4,790 | |
| Income taxes | Income taxes | 1,184 | | | 4,431 | | | 4,554 | | | 6,396 | | Income taxes | | 3,240 | | | 1,430 | |
| Net income | Net income | $ | 2,574 | | | $ | 11,152 | | | $ | 10,490 | | | $ | 15,724 | | Net income | | $ | 7,328 | | | $ | 3,360 | |
| Net income per share: | Net income per share: | | | | | | | Net income per share: | | | | |
Class A common stock: | Class A common stock: | | | | | | | Class A common stock: | | | | |
Basic | Basic | $ | 0.20 | | | $ | 0.86 | | | $ | 0.80 | | | $ | 1.22 | | Basic | | $ | 0.56 | | | $ | 0.26 | |
Diluted | Diluted | $ | 0.18 | | | $ | 0.77 | | | $ | 0.72 | | | $ | 1.09 | | Diluted | | $ | 0.50 | | | $ | 0.23 | |
| Class B common stock: | Class B common stock: | | | | | | | Class B common stock: | | | | |
Basic | Basic | $ | 0.13 | | | $ | 0.56 | | | $ | 0.52 | | | $ | 0.79 | | Basic | | $ | 0.37 | | | $ | 0.17 | |
Diluted | Diluted | $ | 0.13 | | | $ | 0.56 | | | $ | 0.52 | | | $ | 0.79 | | Diluted | | $ | 0.37 | | | $ | 0.17 | |
See notes to consolidated financial statements.
| VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) | VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) | VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) |
| | 13 Weeks Ended | | 39 Weeks Ended | | | 13 Weeks Ended |
| | April 24, 2021 | | April 25, 2020 | | April 24, 2021 | | April 25, 2020 | | | October 30, 2021 | | October 24, 2020 |
Net income | Net income | $ | 2,574 | | | $ | 11,152 | | | $ | 10,490 | | | $ | 15,724 | | Net income | | $ | 7,328 | | | $ | 3,360 | |
| Other comprehensive income: | Other comprehensive income: | | | | | | | | Other comprehensive income: | | | | |
Unrealized gains on interest rate swaps, net of tax (1) | Unrealized gains on interest rate swaps, net of tax (1) | 953 | | | 0 | | | 2,047 | | | 0 | | Unrealized gains on interest rate swaps, net of tax (1) | | 791 | | | 594 | |
Amortization of pension actuarial loss, net of tax (2) | Amortization of pension actuarial loss, net of tax (2) | 101 | | | 100 | | | 304 | | | 303 | | Amortization of pension actuarial loss, net of tax (2) | | 88 | | | 101 | |
Pension settlement loss, net of tax (3) | 0 | | | 83 | | | 0 | | | 954 | | |
Pension remeasurement, net of tax (4) | 0 | | | 323 | | | 0 | | | (381) | | |
| | | Comprehensive income | Comprehensive income | $ | 3,628 | | | $ | 11,658 | | | $ | 12,841 | | | $ | 16,600 | | Comprehensive income | | $ | 8,207 | | | $ | 4,055 | |
(1)Amount is net of tax of $417$339 and $896$261 for the 13 and 39 weeks ended AprilOctober 30, 2021 and October 24, 2021,2020, respectively.
(2)Amounts are net of tax of $46$38 and $44$46 for the 13 weeks April 24,October 30, 2021 and April 25, 2020, respectively, and $137 and $132 for the 39 weeks ended AprilOctober 24, 2021 and April 25, 2020, respectively. All amounts are reclassified from accumulated other comprehensive loss to operating and administrative expense.
(3)Amounts are net of tax of $33 and $408 for the 13 and 39 weeks ended April 25, 2020. All amounts are reclassified from accumulated other comprehensive loss to operating and administrative expense.
(4)Amounts are net of tax of $139 and $164 for the 13 and 39 weeks ended April 25, 2020.
See notes to consolidated financial statements.
| VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands) (Unaudited) | VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands) (Unaudited) | VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands) (Unaudited) |
| | 13 Weeks Ended April 24, 2021 and April 25, 2020 | | 13 Weeks Ended October 30, 2021 and October 24, 2020 |
| | Class A Common Stock | | Class B Common Stock | | | Accumulated Other Comprehensive Income (Loss)
| | Treasury Stock Class A | | Total Shareholders' Equity
| | Class A Common Stock | | Class B Common Stock | | | Accumulated Other Comprehensive Income (Loss)
| | Treasury Stock Class A | | Total Shareholders' Equity
|
| | Shares Issued | | Amount | | Shares Issued | | Amount | | Retained Earnings | | Shares | | Amount | | Shares Issued | | Amount | | Shares Issued | | Amount | | Retained Earnings | | Shares | | Amount |
Balance, January 23, 2021 | 10,985 | | | $ | 69,324 | | | 4,294 | | | $ | 697 | | | $ | 287,634 | | | $ | (7,454) | | | 726 | | | $ | (13,939) | | | $ | 336,262 | | |
Balance, July 31, 2021 | | Balance, July 31, 2021 | 10,978 | | | $ | 70,594 | | | 4,294 | | | $ | 697 | | | $ | 293,185 | | | $ | (9,064) | | | 726 | | | $ | (13,939) | | | $ | 341,473 | |
Net income | Net income | — | | | — | | | — | | | — | | | 2,574 | | | — | | | — | | | — | | | 2,574 | | Net income | — | | | — | | | — | | | — | | | 7,328 | | | — | | | — | | | — | | | 7,328 | |
Other comprehensive income, net of tax of $463 | — | | | — | | | — | | | — | | | — | | | 1,054 | | | — | | | — | | | 1,054 | | |
Other comprehensive income, net of tax of $377 | | Other comprehensive income, net of tax of $377 | — | | | — | | | — | | | — | | | — | | | 879 | | | — | | | — | | | 879 | |
Dividends | Dividends | — | | | — | | | — | | | — | | | (3,262) | | | — | | | — | | | — | | | (3,262) | | Dividends | — | | | — | | | — | | | — | | | (3,264) | | | — | | | — | | | — | | | (3,264) | |
| Treasury stock purchases | | Treasury stock purchases | — | | | — | | | — | | | — | | | — | | | — | | | 4 | | | (89) | | | (89) | |
| Share-based compensation expense | Share-based compensation expense | — | | | 640 | | | — | | | — | | | — | | | — | | | — | | | — | | | 640 | | Share-based compensation expense | 9 | | | 644 | | | — | | | — | | | — | | | — | | | — | | | — | | | 644 | |
| Balance, April 24, 2021 | 10,985 | | | $ | 69,964 | | | 4,294 | | | $ | 697 | | | $ | 286,946 | | | $ | (6,400) | | | 726 | | | $ | (13,939) | | | $ | 337,268 | | |
| Balance, January 25, 2020 | 10,586 | | | $ | 66,655 | | | 4,294 | | | $ | 697 | | | $ | 272,401 | | | $ | (7,972) | | | 513 | | | $ | (9,799) | | | $ | 321,982 | | |
Net income | — | | | — | | | — | | | — | | | 11,152 | | | — | | | — | | | — | | | 11,152 | | |
Other comprehensive income, net of tax of $216 | — | | | — | | | — | | | — | | | — | | | 506 | | | — | | | — | | | 506 | | |
Dividends | — | | | — | | | — | | | — | | | (3,259) | | | — | | | — | | | — | | | (3,259) | | |
| Treasury stock purchases | — | | | — | | | — | | | — | | | — | | | — | | | 213 | | | (4,140) | | | (4,140) | | |
Restricted shares forfeited | (1) | | | (19) | | | — | | | — | | | — | | | — | | | — | | | — | | | (19) | | |
Share-based compensation expense | 385 | | | 786 | | | — | | | — | | | — | | | — | | | — | | | — | | | 786 | | |
| Balance, April 25, 2020 | 10,970 | | | $ | 67,422 | | | 4,294 | | | $ | 697 | | | $ | 280,294 | | | $ | (7,466) | | | 726 | | | $ | (13,939) | | | $ | 327,008 | | |
| | 39 Weeks Ended April 24, 2021 and April 25, 2020 | |
| Class A Common Stock | | Class B Common Stock | | | Accumulated Other Comprehensive Income (Loss)
| | Treasury Stock Class A | | Total Shareholders' Equity
| |
Balance, October 30, 2021 | | Balance, October 30, 2021 | 10,987 | | | $ | 71,238 | | | 4,294 | | | $ | 697 | | | $ | 297,249 | | | $ | (8,185) | | | 730 | | | $ | (14,028) | | | $ | 346,971 | |
| | Shares Issued | | Amount | | Shares Issued | | Amount | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss)
| | Shares | | Amount | | Total Shareholders' Equity
| | | | | | | | | | | | | | | | | | |
Balance, July 25, 2020 | Balance, July 25, 2020 | 10,985 | | | $ | 68,072 | | | 4,294 | | | $ | 697 | | | $ | 286,241 | | | 726 | | | $ | (13,939) | | Balance, July 25, 2020 | 10,985 | | | $ | 68,072 | | | 4,294 | | | $ | 697 | | | $ | 286,241 | | | $ | (8,751) | | | 726 | | | $ | (13,939) | | | $ | 332,320 | |
Net income | Net income | — | | | — | | | — | | | — | | | 10,490 | | | — | | | — | | | — | | | 10,490 | | Net income | — | | | — | | | — | | | — | | | 3,360 | | | — | | | — | | | — | | | 3,360 | |
Other comprehensive income, net of tax of $1,033 | — | | | — | | | — | | | — | | | — | | | 2,351 | | | — | | | — | | | 2,351 | | |
Other comprehensive income, net of tax of $307 | | Other comprehensive income, net of tax of $307 | — | | | — | | | — | | | — | | | — | | | 695 | | | — | | | — | | | 695 | |
Dividends | Dividends | — | | | — | | | — | | | — | | | (9,785) | | | — | | | — | | | — | | | (9,785) | | Dividends | — | | | — | | | — | | | — | | | (3,257) | | | — | | | — | | | — | | | (3,257) | |
| Restricted shares forfeited | Restricted shares forfeited | (8) | | | (24) | | | — | | | — | | | — | | | — | | | — | | | — | | | (24) | | Restricted shares forfeited | (5) | | | (12) | | | — | | | — | | | — | | | — | | | — | | | — | | | (12) | |
Share-based compensation expense | Share-based compensation expense | 8 | | | 1,916 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,916 | | Share-based compensation expense | 8 | | | 635 | | | — | | | — | | | — | | | — | | | — | | | — | | | 635 | |
| Balance, October 24, 2020 | | Balance, October 24, 2020 | 10,988 | | | $ | 68,695 | | | 4,294 | | | $ | 697 | | | $ | 286,344 | | | $ | (8,056) | | | 726 | | | $ | (13,939) | | | $ | 333,741 | |
| Balance, April 24, 2021 | 10,985 | | | $ | 69,964 | | | 4,294 | | | $ | 697 | | | $ | 286,946 | | | $ | (6,400) | | | 726 | | | $ | (13,939) | | | $ | 337,268 | | |
| Balance, July 27, 2019 | 10,593 | | | $ | 65,114 | | | 4,294 | | | $ | 697 | | | $ | 270,753 | | | $ | (8,342) | | | 502 | | | $ | (9,550) | | | $ | 318,672 | | |
Net income | — | | | — | | | — | | | — | | | 15,724 | | | — | | | — | | | — | | | 15,724 | | |
Other comprehensive income, net of tax of $376 | — | | | — | | | — | | | — | | | — | | | 876 | | | — | | | — | | | 876 | | |
Dividends | — | | | — | | | — | | | — | | | (9,697) | | | — | | | — | | | — | | | (9,697) | | |
| Treasury stock purchases | — | | | — | | | — | | | — | | | — | | | — | | | 224 | | | (4,389) | | | (4,389) | | |
Restricted shares forfeited | (10) | | | (199) | | | — | | | — | | | — | | | — | | | — | | | — | | | (199) | | |
Share-based compensation expense | 387 | | | 2,507 | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,507 | | |
Adjustment due to the adoption of ASU 2016-02, net of tax of $1,385 | — | | | — | | | — | | | — | | | 3,514 | | | — | | | — | | | — | | | 3,514 | | |
Balance, April 25, 2020 | 10,970 | | | $ | 67,422 | | | 4,294 | | | $ | 697 | | | $ | 280,294 | | | $ | (7,466) | | | 726 | | | $ | (13,939) | | | $ | 327,008 | | |
| |
See notes to consolidated financial statements.
| VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) | VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) | VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) |
| | 39 Weeks Ended | | 13 Weeks Ended |
| | April 24, 2021 | | April 25, 2020 | | October 30, 2021 | | October 24, 2020 |
CASH FLOWS FROM OPERATING ACTIVITIES | CASH FLOWS FROM OPERATING ACTIVITIES | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | Net income | $ | 10,490 | | | $ | 15,724 | | Net income | $ | 7,328 | | | $ | 3,360 | |
Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | | Adjustments to reconcile net income to net cash provided by operating activities: | | |
Depreciation and amortization | Depreciation and amortization | 27,003 | | | 22,914 | | Depreciation and amortization | 8,712 | | | 9,072 | |
Non-cash share-based compensation | Non-cash share-based compensation | 1,892 | | | 2,308 | | Non-cash share-based compensation | 644 | | | 623 | |
Loss on pension settlements | 0 | | | 1,362 | | |
| Deferred taxes | Deferred taxes | (1,539) | | | 983 | | Deferred taxes | (600) | | | (836) | |
Provision to value inventories at LIFO | Provision to value inventories at LIFO | 0 | | | 400 | | Provision to value inventories at LIFO | 250 | | | — | |
| Gain on sale of property, equipment and fixtures | Gain on sale of property, equipment and fixtures | (1,031) | | | (1,252) | | Gain on sale of property, equipment and fixtures | (166) | | | (42) | |
Changes in assets and liabilities: | Changes in assets and liabilities: | | | Changes in assets and liabilities: | | |
Merchandise inventories | Merchandise inventories | (2,837) | | | 5,490 | | Merchandise inventories | (3,638) | | | (4,761) | |
Patronage dividend receivable | Patronage dividend receivable | 3,464 | | | 4,408 | | Patronage dividend receivable | (4,641) | | | (4,609) | |
Accounts payable to Wakefern | Accounts payable to Wakefern | (6,485) | | | 9,962 | | Accounts payable to Wakefern | 5,634 | | | (6,127) | |
Accounts payable and accrued expenses | Accounts payable and accrued expenses | (4,076) | | | (3,153) | | Accounts payable and accrued expenses | (1,655) | | | (1,608) | |
Accrued wages and benefits | Accrued wages and benefits | (502) | | | (982) | | Accrued wages and benefits | (1,764) | | | (309) | |
Income taxes receivable / payable | Income taxes receivable / payable | 4,611 | | | 1,278 | | Income taxes receivable / payable | (1,210) | | | 2,260 | |
Other assets and liabilities | Other assets and liabilities | 2,005 | | | (38) | | Other assets and liabilities | (1,007) | | | (376) | |
Net cash provided by operating activities | 32,995 | | | 59,404 | | |
Net cash provided by (used in) operating activities | | Net cash provided by (used in) operating activities | 7,887 | | | (3,353) | |
CASH FLOWS FROM INVESTING ACTIVITIES | CASH FLOWS FROM INVESTING ACTIVITIES | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Capital expenditures | Capital expenditures | (14,901) | | | (47,812) | | Capital expenditures | (13,343) | | | (3,301) | |
Proceeds from the sale of assets | Proceeds from the sale of assets | 1,076 | | | 1,261 | | Proceeds from the sale of assets | 173 | | | 65 | |
Investment in notes receivable from Wakefern | Investment in notes receivable from Wakefern | (1,708) | | | (2,243) | | Investment in notes receivable from Wakefern | (592) | | | (567) | |
| Acquisition deposit in escrow | 0 | | | (7,600) | | |
Acquisition of Gourmet Garage, net of cash acquired | 0 | | | 64 | | |
| Net cash used in investing activities | Net cash used in investing activities | (15,533) | | | (56,330) | | Net cash used in investing activities | (13,762) | | | (3,803) | |
CASH FLOWS FROM FINANCING ACTIVITIES | CASH FLOWS FROM FINANCING ACTIVITIES | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | |
| Proceeds from issuance of long-term debt | Proceeds from issuance of long-term debt | 50,000 | | | 0 | | Proceeds from issuance of long-term debt | — | | | 50,000 | |
Principal payments of long-term debt | Principal payments of long-term debt | (6,459) | | | (507) | | Principal payments of long-term debt | (1,999) | | | (1,444) | |
| Payments on revolving line of credit | Payments on revolving line of credit | (50,000) | | | 0 | | Payments on revolving line of credit | — | | | (50,000) | |
Debt issuance costs | Debt issuance costs | (222) | | | 0 | | Debt issuance costs | — | | | (222) | |
Dividends | Dividends | (9,785) | | | (9,697) | | Dividends | (3,264) | | | (3,257) | |
Treasury stock purchases | 0 | | | (4,389) | | |
Treasury stock purchases, including shares surrendered for withholding taxes | | Treasury stock purchases, including shares surrendered for withholding taxes | (89) | | | — | |
Net cash used in financing activities | Net cash used in financing activities | (16,466) | | | (14,593) | | Net cash used in financing activities | (5,352) | | | (4,923) | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 996 | | | (11,519) | | |
NET DECREASE IN CASH AND CASH EQUIVALENTS | | NET DECREASE IN CASH AND CASH EQUIVALENTS | (11,227) | | | (12,079) | |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 111,681 | | | 101,121 | | CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 116,314 | | | 111,681 | |
| CASH AND CASH EQUIVALENTS, END OF PERIOD | CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 112,677 | | | $ | 89,602 | | CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 105,087 | | | $ | 99,602 | |
| SUPPLEMENTAL DISCLOSURES OF CASH PAYMENTS MADE FOR: | SUPPLEMENTAL DISCLOSURES OF CASH PAYMENTS MADE FOR: | | | | SUPPLEMENTAL DISCLOSURES OF CASH PAYMENTS MADE FOR: | | | |
Interest | Interest | $ | 2,963 | | | $ | 1,698 | | Interest | $ | 970 | | | $ | 987 | |
Income taxes | Income taxes | $ | 1,475 | | | $ | 4,132 | | Income taxes | $ | 5,050 | | | $ | — | |
| NONCASH SUPPLEMENTAL DISCLOSURES: | NONCASH SUPPLEMENTAL DISCLOSURES: | | | | NONCASH SUPPLEMENTAL DISCLOSURES: | | | |
Investment in Wakefern and increase in notes payable to Wakefern | Investment in Wakefern and increase in notes payable to Wakefern | $ | 351 | | | $ | 93 | | Investment in Wakefern and increase in notes payable to Wakefern | $ | — | | | $ | 670 | |
Capital expenditures included in accounts payable and accrued expenses | Capital expenditures included in accounts payable and accrued expenses | $ | 3,779 | | | $ | 5,221 | | Capital expenditures included in accounts payable and accrued expenses | $ | 3,693 | | | $ | 4,951 | |
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited)
1. BASIS OF PRESENTATION and ACCOUNTING POLICIES
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly the consolidated financial position as of April 24,October 30, 2021 and the consolidated statements of operations, comprehensive income and cash flows for the 13 and 39 weeks ended April 24,October 30, 2021 and April 25,October 24, 2020 of Village Super Market, Inc. (“Village” or the “Company”).
The significant accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements in the July 25, 202031, 2021 Village Super Market, Inc. Annual Report on Form 10-K, which should be read in conjunction with these financial statements. The results of operations for the periods ended April 24,October 30, 2021 are not necessarily indicative of the results to be expected for the full year.
Disaggregated Revenues
The following table presents the Company's sales by product categories during each of the periods indicated:
| | | 13 Weeks Ended | | 39 Weeks Ended | | | 13 Weeks Ended |
| | April 24, 2021 | | April 25, 2020 | | April 24, 2021 | | April 25, 2020 | | | October 30, 2021 | | October 24, 2020 |
| | Amount | | % | | Amount | | % | | Amount | | % | | Amount | | % | | | Amount | | % | | Amount | | % |
Center Store (1) | Center Store (1) | $ | 286,882 | | | 59.6 | % | | $ | 291,257 | | | 63.5 | % | | $ | 904,651 | | | 60.6 | % | | $ | 812,089 | | | 62.3 | % | Center Store (1) | | $ | 295,974 | | | 59.9 | % | | $ | 295,940 | | | 60.4 | % |
Fresh (2) | Fresh (2) | 176,013 | | | 36.6 | | | 148,489 | | | 32.4 | | | 533,622 | | | 35.7 | | | 434,669 | | | 33.4 | | Fresh (2) | | 179,823 | | | 36.4 | | | 175,644 | | | 35.8 | |
Pharmacy | Pharmacy | 16,303 | | | 3.4 | | | 17,252 | | | 3.8 | | | 49,406 | | | 3.3 | | | 52,486 | | | 4.0 | | Pharmacy | | 16,848 | | | 3.4 | | | 16,432 | | | 3.4 | |
Other (3) | Other (3) | 1,895 | | | 0.4 | | | 1,294 | | | 0.3 | | | 6,368 | | | 0.4 | | | 3,872 | | | 0.3 | | Other (3) | | 1,566 | | | 0.3 | | | 2,120 | | | 0.4 | |
| Total Sales | Total Sales | $ | 481,093 | | | 100.0 | % | | $ | 458,292 | | | 100.0 | % | | $ | 1,494,047 | | | 100.0 | % | | $ | 1,303,116 | | | 100.0 | % | Total Sales | | $ | 494,211 | | | 100.0 | % | | $ | 490,136 | | | 100.0 | % |
(1) Consists primarily of grocery, dairy, frozen, health and beauty care, general merchandise and liquor.
(2) Consists primarily of produce, meat, deli, seafood, bakery, prepared foods and floral.
(3) Consists primarily of sales related to other income streams, including ShopRite from Home service fees related to digital sales, gift card and lottery commissions and wholesale sales.
2. MERCHANDISE INVENTORIES
At both April 24,October 30, 2021 and July 25, 2020,31, 2021, approximately 63%62% of merchandise inventories are valued by the LIFO method while the balance is valued by FIFO. If the FIFO method had been used for the entire inventory, inventories would have been $15,101$15,571 and $15,321 higher than reported at both April 24,October 30, 2021 and July 25, 2020.31, 2021, respectively.
3. NET INCOME PER SHARE
The Company has 2 classes of common stock. Class A common stock is entitled to cash dividends as declared 54% greater than those paid on Class B common stock. Shares of Class B common stock are convertible on a share-for-share basis for Class A common stock at any time.
The Company utilizes the two-class method of computing and presenting net income per share. The two-class method is an earnings allocation formula that calculates basic and diluted net income per share for each class of common stock separately based on dividends declared and participation rights in undistributed earnings. Under the two-class method, Class A common stock is assumed to receive a 54% greater participation in undistributed earnings than Class B common stock, in accordance with the classes' respective dividend rights. Unvested share-based payment awards that contain nonforfeitable rights to dividends are treated as participating securities and therefore included in computing net income per share using the two-class method.
Diluted net income per share for Class A common stock is calculated utilizing the if-converted method, which assumes the conversion of all shares of Class B common stock to Class A common stock on a share-for-share basis, as this method is more dilutive than the two-class method. Diluted net income per share for Class B common stock does not assume conversion of Class B common stock to shares of Class A common stock.
The tables below reconcile the numerators and denominators of basic and diluted net income per share for all periods presented.
| | | 13 Weeks Ended | | 39 Weeks Ended | | | 13 Weeks Ended |
| | April 24, 2021 | | April 24, 2021 | | | October 30, 2021 |
| | Class A | | Class B | | Class A | | Class B | | | Class A | | Class B |
Numerator: | Numerator: | | | | | | | | Numerator: | | | | |
Net income allocated, basic | Net income allocated, basic | $ | 1,943 | | | $ | 551 | | | $ | 7,914 | | | $ | 2,242 | | Net income allocated, basic | | $ | 5,538 | | | $ | 1,566 | |
Conversion of Class B to Class A shares | Conversion of Class B to Class A shares | 551 | | | 0 | | | 2,242 | | | 0 | | Conversion of Class B to Class A shares | | 1,566 | | | — | |
| Net income allocated, diluted | Net income allocated, diluted | $ | 2,494 | | | $ | 551 | | | $ | 10,156 | | | $ | 2,242 | | Net income allocated, diluted | | $ | 7,104 | | | $ | 1,566 | |
| Denominator: | Denominator: | | | | | | | | Denominator: | | | | |
Weighted average shares outstanding, basic | Weighted average shares outstanding, basic | 9,850 | | | 4,294 | | | 9,850 | | | 4,294 | | Weighted average shares outstanding, basic | | 9,864 | | | 4,294 | |
Conversion of Class B to Class A shares | Conversion of Class B to Class A shares | 4,294 | | | 0 | | | 4,294 | | | 0 | | Conversion of Class B to Class A shares | | 4,294 | | | — | |
| Weighted average shares outstanding, diluted | Weighted average shares outstanding, diluted | 14,144 | | | 4,294 | | | 14,144 | | | 4,294 | | Weighted average shares outstanding, diluted | | 14,158 | | | 4,294 | |
| | | 13 Weeks Ended | | 39 Weeks Ended | | | 13 Weeks Ended |
| | April 25, 2020 | | April 25, 2020 | | | October 24, 2020 |
| | Class A | | Class B | | Class A | | Class B | | | Class A | | Class B |
Numerator: | Numerator: | | | | | | | | Numerator: | | | | |
Net income allocated, basic | Net income allocated, basic | $ | 8,431 | | | $ | 2,398 | | | $ | 11,892 | | | $ | 3,390 | | Net income allocated, basic | | $ | 2,526 | | | $ | 716 | |
Conversion of Class B to Class A shares | Conversion of Class B to Class A shares | 2,398 | | | 0 | | | 3,390 | | | 0 | | Conversion of Class B to Class A shares | | 716 | | | — | |
| Net income allocated, diluted | Net income allocated, diluted | $ | 10,829 | | | $ | 2,398 | | | $ | 15,282 | | | $ | 3,390 | | Net income allocated, diluted | | $ | 3,242 | | | $ | 716 | |
| Denominator: | Denominator: | | | | | | | | Denominator: | | | | |
Weighted average shares outstanding, basic | Weighted average shares outstanding, basic | 9,789 | | | 4,294 | | | 9,775 | | | 4,294 | | Weighted average shares outstanding, basic | | 9,850 | | | 4,294 | |
Conversion of Class B to Class A shares | Conversion of Class B to Class A shares | 4,294 | | | 0 | | | 4,294 | | | 0 | | Conversion of Class B to Class A shares | | 4,294 | | | — | |
| Weighted average shares outstanding, diluted | Weighted average shares outstanding, diluted | 14,083 | | | 4,294 | | | 14,069 | | | 4,294 | | Weighted average shares outstanding, diluted | | 14,144 | | | 4,294 | |
Outstanding stock options to purchase Class A shares of 156102 and 159154 were excluded from the calculation of diluted net income per share at April 24,October 30, 2021 and April 25,October 24, 2020, respectively, as a result of their anti-dilutive effect. In addition, 398388 and 397416 non-vested restricted Class A shares, which are considered participating securities, and their allocated net income were excluded from the diluted net income per share calculation at April 24,October 30, 2021 and April 25,October 24, 2020, respectively, due to their anti-dilutive effect.
4. PENSION PLANS
Net periodic pension cost for the 3 defined benefit pension plans sponsored in fiscal 20212022 and the 4 defined benefit pension plans sponsored in fiscal 20202021 includes the following components:
| | | 13 Weeks Ended | | 39 Weeks Ended | | 13 Weeks Ended | |
| | April 24, 2021 | | April 25, 2020 | | April 24, 2021 | | April 25, 2020 | | October 30, 2021 | | October 24, 2020 | |
Service cost | Service cost | $ | 54 | | | $ | 51 | | | $ | 162 | | | $ | 152 | | Service cost | $ | 47 | | | $ | 54 | | |
Interest cost on projected benefit obligations | Interest cost on projected benefit obligations | 422 | | | 512 | | | 1,266 | | | 1,643 | | Interest cost on projected benefit obligations | 420 | | | 422 | | |
Expected return on plan assets | Expected return on plan assets | (483) | | | (733) | | | (1,449) | | | (2,061) | | Expected return on plan assets | (409) | | | (483) | | |
Loss on settlement | 0 | | | 116 | | | 0 | | | 1,362 | | |
| Amortization of net losses | Amortization of net losses | 147 | | | 144 | | | 441 | | | 435 | | Amortization of net losses | 126 | | | 147 | | |
Net periodic pension cost | Net periodic pension cost | $ | 140 | | | $ | 90 | | | $ | 420 | | | $ | 1,531 | | Net periodic pension cost | $ | 184 | | | $ | 140 | | |
On December 23, 2019, the Company terminated the Village Super Market, Inc. Retail Clerks Employees’ Retirement Plan. All participants of the plan were former employees of a store previously closed in 1994. An annuity contract totaling $1,302 was purchased with an insurance company for all participants who did not elect a lump sum distribution. Additionally, lump sum distributions related to the termination totaled $451. The plan had sufficient assets to satisfy all termination transaction obligations, and 0 benefit obligation or plan assets related to the Village Super Market, Inc. Retail Clerks Employees’ Retirement Plan remained as of the termination date. As a result of this termination, the Company recognized a non-cash pre-tax settlement charge totaling $669 during the 13 weeks ended January 25, 2020. This settlement charge represents the plan’s remaining unrecognized losses within accumulated other comprehensive loss as of the termination date.
Additionally, the Company recognized a settlement loss of $116 and $693 in the 13 and 39 weeks ended April 25, 2020, respectively, for a plan where benefits paid exceeded the sum of the service cost and interest cost components of net periodic pension cost. Assumptions used in the related remeasurement include a discount rate of 2.85% and long term expected rate of return on plan assets of 5.00%.
As of April 24,October 30, 2021, the Company has 0tnot made any contributions to its pension plans in fiscal 2021.2022. The Company expects contributions to its defined benefit pensionterminate one of the plans during fiscal 2022. The Company will fully fund this plan and liquidate all plan assets to purchase annuity contracts from an insurance company for all participants who do not elect a lump sum distribution. As of July 31, 2021, the funded status of this plan was a net liability of $3,844. Contributions to the remaining plans are expected to be immaterial in fiscal 2021.2022.
5. RELATED PARTY INFORMATION
A description of the Company’s transactions with Wakefern, its principal supplier, and with other related parties is included in the Company’s Annual Report on Form 10-K for the year ended July 25, 2020.31, 2021.
Included in cash and cash equivalents at April 24,October 30, 2021 and July 25, 202031, 2021 are $82,651$75,850 and $76,259,$86,670, respectively, of demand deposits invested at Wakefern at overnight money market rates.
There have been no other significant changes in the Company’s relationships or nature of transactions with related parties during the 3913 weeks ended April 24,October 30, 2021.
6. COMMITMENTS and CONTINGENCIES
The Company is involved in other litigation incidental to the normal course of business. Company management is of the opinion that the ultimate resolution of these legal proceedings should not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company.
7. DEBT
Long-term debt consists of:
| | | April 24, 2021 | | July 25, 2020 | | October 30, 2021 | | July 31, 2021 |
Unsecured revolving line of credit | | $ | 0 | | | $ | 50,000 | | |
| Secured term loan | Secured term loan | | 47,852 | | | 0 | | Secured term loan | | $ | 46,199 | | | $ | 47,025 | |
Unsecured term loan | Unsecured term loan | | 22,003 | | | 24,694 | | Unsecured term loan | | 20,206 | | | 21,104 | |
New Market Tax Credit Financing | New Market Tax Credit Financing | | 5,735 | | | 5,921 | | New Market Tax Credit Financing | | 5,612 | | | 5,674 | |
| Total debt, excluding obligations under leases | Total debt, excluding obligations under leases | | 75,590 | | | 80,615 | | Total debt, excluding obligations under leases | | 72,017 | | | 73,803 | |
Less current portion | Less current portion | | 6,976 | | | 6,421 | | Less current portion | | 6,976 | | | 6,976 | |
| Total long-term debt, excluding obligations under leases | Total long-term debt, excluding obligations under leases | | $ | 68,614 | | | $ | 74,194 | | Total long-term debt, excluding obligations under leases | | $ | 65,041 | | | $ | 66,827 | |
Credit Facility
On May 6, 2020, Village entered into a credit agreement (the “Credit Facility”) with Wells Fargo National Bank, National Association (“Wells Fargo”) that supersedes in its entirety the prior credit agreement with Wells Fargo dated November 9, 2017. The principal purpose of the Credit Facility is to finance general corporate and working capital requirements and Village’s acquisition of certain Fairway assets.Markets assets, including five stores and a production distribution center. Among other things, the Credit Facility provides for a maximum loan amount of $150,500 as further set forth below:
•An unsecured revolving line of credit providing a maximum amount available for borrowing of $125,000. Indebtedness under this agreement bears interest at the applicable LIBOR rate plus 1.10% and expires on May 6, 2025.
•An unsecured term loan with a maximum loan amount of $25,500. On May 12, 2020, Village executed a $25,500 term note, repayable in equal monthly installments based on a seven-year amortization schedule through May 4, 2027 and bearing interest at the applicable LIBOR rate plus 1.35%. Additionally, Village executed an interest rate swap for a notional amount equal to the term loan amount that fixes the base LIBOR rate at .41% per annum through May 4, 2027, resulting in a fixed effective interest rate of 1.76% on the term note.
•On September 1, 2020, Village converted $50,000 of its revolving line of credit to a secured converted term loan. The conversion reduced the maximum amount available for borrowing under the revolving line of credit from $125,000 to $75,000. The term loan bears interest at the applicable LIBOR rate plus 1.50% and is repayable in equal monthly installments based on a fifteen-year amortization schedule beginning on the conversion date. Additionally, Village previously executed a forward interest rate swap, effective on the conversion date, for a notional amount equal to the term loan amount that fixes the base LIBOR rate at .69% per annum for 15 years, resulting in a fixed effective interest rate of 2.19% on the converted term loan. The term loan is secured by real properties of Village Super Market, Inc. and its subsidiaries, including the sites of 3three Village stores.
The Credit Facility also provides for up to $25,000 of letters of credit ($7,336 outstanding at April 24,October 30, 2021), which secure obligations for store leases and construction performance guarantees to municipalities. The Credit Facility contains covenants that, among other conditions, require a minimum tangible net worth, a minimum fixed charge coverage ratio and a maximum adjusted debt to EBITDAR ratio. The Company was in compliance with all covenants of the credit agreement at April 24,October 30, 2021.
New Markets Tax Credit Financing
On December 29, 2017, the Company entered into a financing transaction with Wells Fargo Community Investment Holdings, LLC (“Wells Fargo”) under a qualified New Markets Tax Credit (“NMTC”) program related to the construction of a new store in the Bronx, New York. The NMTC program was provided for in the Community Renewal Tax Relief Act of 2000 (the “Act”) and is intended to induce capital investment in qualified lower income communities. The Act permits taxpayers to claim credits against their Federal income taxes for up to 39% of qualified investments in the equity of community development entities (“CDEs”). CDEs are privately managed investment institutions that are certified to make qualified low-income community investments.
In connection with the financing, the Company loaned $4,835 to VSM Investment Fund, LLC (the "Investment Fund") at an interest rate of 1.403% per year and with a maturity date of December 31, 2044. Repayments on the loan commence in March 2025. Wells Fargo contributed $2,375 to the Investment Fund and, by virtue of such contribution, is entitled to substantially all of the tax benefits derived from the NMTC. The Investment Fund is a wholly owned subsidiary of Wells Fargo. The loan to the Investment Fund is recorded in other assets in the consolidated balance sheets.
The Investment Fund then contributed the proceeds to a CDE, which, in turn, loaned combined funds of $6,563, net of debt issuance costs, to Village Super Market of NY, LLC, a wholly-owned subsidiary of the Company, at an interest rate of 1.000% per year with a maturity date of December 31, 2051. These loans are secured by the leasehold improvements and equipment related to the construction of the Bronx store. Repayment of the loans commences in March 2025. The proceeds of the loans from the CDE were used to partially fund the construction of the Bronx store. The Notes payable related to New Markets Tax Credit, net of debt issuance costs, are recorded in long-term debt in the consolidated balance sheets.
The NMTC is subject to 100% recapture for a period of seven years. The Company is required to be in compliance with various regulations and contractual provisions that apply to the New Markets Tax Credit arrangement. Noncompliance could result in Wells Fargo's projected tax benefits not being realized and, therefore, require the Company to indemnify Wells Fargo for any loss or recapture of NMTCs. The Company does not anticipate any credit recapture will be required in connection with this financing arrangement. The transaction includes a put/call provision whereby the Company may be obligated or entitled to repurchase Wells Fargo's interest in the Investment Fund. The value attributed to the put/call is de minimis. We believe that Wells Fargo will exercise the put option in December 2024, at the end of the recapture period, that will result in a net benefit to the Company of $1,728. The Company is recognizing the net benefit over the seven-year compliance period in operating and administrative expense.
8. DERIVATIVES AND HEDGING ACTIVITIES
The Company is exposed to interest rate risk arising from fluctuations in LIBOR related to the Company’s Credit Facility. The Company manages exposure to this risk and the variability of related cash flows primarily by the use of derivative financial instruments, specifically, interest rate swaps.
The Company’s objectives in using interest rate swaps are to add stability to interest expense and to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
In 2020, the Company executed 2 interest rate swaps with an aggregate notional value of $75,500 to hedge the variable cash flows associated with variable-rate loans under the Company's Credit Facility. The interest rate swaps were executed for risk management and are not held for trading purposes. The objective of the interest rate swaps is to hedge the variability of cash flows resulting from fluctuations in LIBOR. The swaps replaced the applicable LIBOR with fixed interest rates and payments are settled monthly when payments are made on the variable-rate loans. The Company's derivatives qualify and have been designated as cash flow hedges of interest rate risk. The gain or loss on the derivative is recorded in Accumulated other comprehensive loss and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in Accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the variable-rate loans. The Company reclassified $86$88 and $234$66 during the 13 and 39 weeks ended AprilOctober 30, 2021 and October 24, 2021,2020, respectively, from Accumulated other comprehensive loss to Interest expense.
The notional value of the interest rate swaps were $70,216$66,728 as of April 24,October 30, 2021. The fair value of interest rate swaps recorded in other assets is $2,022$2,241 as of April 24,October 30, 2021.
9. BUSINESS ACQUISITION
On May 14, 2020, Village completed its acquisition of certain assets, including 5 supermarkets averaging 52,000 sq. ft. (30,000 selling sq. ft.), a production distribution center (the “PDC”) and the intellectual property of Fairway Group Holdings Corp. and certain of its subsidiaries (“Fairway”), including the names “Fairway” and “Fairway Markets.” Four of the supermarkets are in Manhattan, specifically the Upper West Side, Upper East Side, Kips Bay and Chelsea locations, and a fifth store is located in Pelham, NY. The acquisition was effectuated pursuant to the Asset Purchase Agreement (the "APA"), entered into on January 20, 2020, revised on March 25, 2020 and approved by the United States Bankruptcy Court for the Southern District of New York through a Sale Order entered on April 20, 2020. Village paid $73,622 for the Fairway assets, net
of cash acquired, and assumed certain liabilities, consisting primarily of those arising from acquired leases. Additionally, at the time of closing Village received a $2,035 credit arising from the breakup of Village’s initial “stalking horse” bid under the January 20, 2020 Asset Purchase Agreement. The credit was recognized as a reduction in operating and administrative expense in the fourth quarter of fiscal 2020. The Fairway acquisition expands our presence in New York City under an iconic city brand and provides Village the ability to expand centralized food production to support stores under all of our banners.
Village accounted for this transaction as a business combination in accordance with the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date. In connection with this acquisition, the Company recorded $11,540 of goodwill attributable to the assembled workforce and cost synergies. The goodwill related to this acquisition is deductible for tax purposes. Additionally, the Company recorded a $14,200 indefinite-lived intangible asset related to the trade name. The fair value of the intangible asset was determined based on the discounted cash flow model using the relief from royalty method. The fair value of the property, equipment and fixtures were determined based on the indirect cost approach in which current costs that were not new were adjusted for all forms of depreciation. The Company also evaluated the fair value of the leases assumed in the acquisition, which evaluated comparable rents in the areas of the locations. Leases were determined to be at market apart from one location. For this location, the Company recorded a favorable lease of $4,360 within operating lease assets. The favorable lease is being amortized over the remaining duration of the lease. Transaction costs were expensed as incurred. The final allocation of the purchase price consideration to the assets acquired and the liabilities assumed has been completed.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands)
OVERVIEW
Village Super Market, Inc. (the “Company” or “Village”) operates a chain of twenty-nine ShopRite supermarkets, five Fairway Markets and three Gourmet Garage specialty markets located in New Jersey, New York, Pennsylvania and Maryland. Village is the second largest member of Wakefern Food Corporation (“Wakefern”), the nation’s largest retailer-owned food cooperative and owner of the ShopRite, Fairway and Gourmet Garage names. As further described in the Company’s Form 10-K, this ownership interest in Wakefern provides Village with many of the economies of scale in purchasing, distribution, advanced retail technology, marketing and advertising associated with chains of greater size and geographic coverage.
On May 14, 2020, Village completed its acquisition of certain assets, including five supermarkets averaging 52,000 sq. ft. (30,000 selling sq. ft.), a production distribution center (the “PDC”) and the intellectual property of Fairway Group Holdings Corp. and certain of its subsidiaries (“Fairway”), including the names “Fairway” and “Fairway Markets” for $73,622, net of cash acquired. Four of the supermarkets are in Manhattan, specifically the Upper West Side, Upper East Side, Kips Bay and Chelsea locations, and a fifth store is located in Pelham, NY. Like Village, Fairway traces its roots back to a neighborhood market over 80 years ago. Fairway Markets offer a one-stop destination shopping experience with an emphasis on fresh, unique, and high quality offerings paired with an expansive variety of natural, organic, specialty and gourmet products. The PDC is a centralized commissary that promotes production efficiency, product quality and consistency in the bakery, prepared foods, meals to go and other perishable product categories. Production costs at the PDC, including materials, labor and overhead, are included in Cost of sales. The Fairway acquisition expands our presence in New York City under an iconic city brand and provides Village the ability to expand centralized food production to support stores under all of our banners.
On February 22, 2021, Village closed the ShopRite store located in Silver Spring, Maryland. Despite continued investment in marketing and promotional programs, the store was unable to generate sales at a level sufficient to maintain profitability, resulting in its closure. The impacts associated with this closure were not material to the consolidated financial statements.
On November 1, 2019, Village opened an 82,000 sq. ft. (52,000 selling sq. ft.) ShopRite in Stroudsburg, Pennsylvania and replaced our existing 53,000 sq. ft. store.
The supermarket industry is highly competitive and characterized by narrow profit margins. The Company competes directly with multiple retail formats, both in-store and online, including national, regional and local supermarket chains as well as warehouse clubs, supercenters, drug stores, discount general merchandise stores, fast food chains, restaurants, dollar stores and convenience stores. Village competes by using low pricing, providing a superior customer service experience and a broad range of consistently available quality products, including our own brands portfolio. In October 2019, ShopRite introduced the Right Price Promise pricing strategy, a commitment to everyday low prices on the items customers purchase most frequently. The ShopRite Price Plus preferred customer program enables Village to offer continuity programs, focus on target marketing initiatives and to offer discounts and attach digital coupons directly to a customer's Price Plus card.
In November 2019, ShopRite launched the Bowl & Basket and Paperbird own brands. Bowl & Basket foods pair thoughtfully selected ingredients at a budget friendly price and Paperbird offers a line of newly designed household products. ShopRite expects to add nearly 3,500 Bowl & Basket foods and Paperbird household products from their launch in November 2019 through fiscal 2021. The introduction of Bowl & Basket and Paperbird follows the 2016 launch of ShopRite’s Wholesome Pantry brands, which include the Wholesome Pantry Organic line as well as a range of products free from 110 ingredients and artificial additives and preservatives.
The Company’s stores, six of which are owned, average 55,000 total square feet. These larger store sizes enable the Company’s stores to provide a “one-stop” shopping experience and to feature expanded higher margin specialty departments such as an onsite bakery, an expanded delicatessen, a variety of natural and organic foods, ethnic and international foods, prepared foods and pharmacies. Many of our stores emphasize a Power Alley, which features high margin, fresh, convenience offerings in an area within the store that provides quick customer entry and exit for those customers shopping for today's lunch or dinner. Certain of our stores include the Village Food Garden concept featuring a restaurant style kitchen, and several kiosks offering a wide variety of store prepared specialty foods for both take-home and in-store dining.
Online grocery ordering for in-store pick up or home delivery through ShopRite from Home is available in all of our ShopRite stores. Customers can browse our circular, create and edit shopping lists and use ShopRite from Home through
shoprite.com or the ShopRite app. Additionally, the ShopRite and Fairway Order Express app enablesapps enable customers to pre-order deli, catering, specialty occasion cakes and other items. Online ordering for home delivery through third party services is available in all Fairway and Gourmet Garage stores. In April 2020 we also added online ordering for home delivery through third party services in all ShopRite stores.
We consider a variety of indicators to evaluate our performance, such as same store sales; percentage of total sales by department (mix); shrink; departmental gross profit percentage; sales per labor hour; units per labor hour; and hourly labor rates.
COVID-19
The Company was significantly impacted by the COVID-19 outbreak as it operates in and around one of the early U.S. epicenters of the health crisis. The Company is classified as an essential business and has remained open to serve our customers and the communities in which we operate. We continue to experience changes in customer shopping habits, shifts in product mix and increased demand through digital channels as a result of the COVID-19 pandemic. Demand remains high in most stores, however sales at Fairway and Gourmet Garage locations in Manhattan have been negatively impacted by localized residential population migration out of the city and less commuter and tourist traffic. We expect continued uncertainty in our business as well as the local and regional economies in which we operate depending on the duration and intensity of the COVID-19 pandemic (see the "Outlook" section below for further discussion of risks and uncertainties).
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 | | 39 Weeks Ended | | 13 Weeks Ended | |
| | April 24, 2021 | | April 25, 2020 | | April 24, 2021 | | April 25, 2020 | | October 30, 2021 | | October 24, 2020 | |
Sales | Sales | 100.00 | % | | 100.00 | % | | 100.00 | % | | 100.00 | % | Sales | 100.00 | % | | 100.00 | % | |
Cost of sales | Cost of sales | 72.27 | | | 71.66 | | | 72.34 | | | 72.27 | | Cost of sales | 71.64 | | | 71.85 | | |
Gross profit | Gross profit | 27.73 | | | 28.34 | | | 27.66 | | | 27.73 | | Gross profit | 28.36 | | | 28.15 | | |
Operating and administrative expense | Operating and administrative expense | 25.18 | | | 23.34 | | | 24.90 | | | 24.39 | | Operating and administrative expense | 24.54 | | | 25.37 | | |
Depreciation and amortization | Depreciation and amortization | 1.74 | | | 1.68 | | | 1.74 | | | 1.76 | | Depreciation and amortization | 1.68 | | | 1.78 | | |
Operating income | Operating income | 0.81 | | | 3.32 | | | 1.02 | | | 1.58 | | Operating income | 2.14 | | | 1.00 | | |
| Interest expense | Interest expense | (0.21) | | | (0.12) | | | (0.20) | | | (0.13) | | Interest expense | (0.20) | | | (0.20) | | |
Interest income | Interest income | 0.19 | | | 0.20 | | | 0.18 | | | 0.25 | | Interest income | 0.20 | | | 0.18 | | |
Income before taxes | Income before taxes | 0.79 | | | 3.40 | | | 1.00 | | | 1.70 | | Income before taxes | 2.14 | | | 0.98 | | |
Income taxes | Income taxes | 0.25 | | | 0.97 | | | 0.30 | | | 0.49 | | Income taxes | 0.66 | | | 0.29 | | |
Net income | Net income | 0.54 | % | | 2.43 | % | | 0.70 | % | | 1.21 | % | Net income | 1.48 | % | | 0.69 | % | |
Sales. Sales were $481,093$494,211 in the 13 weeks ended April 24,October 30, 2021, an increase of 5.0%0.8% compared to the 13 weeks ended April 25,October 24, 2020. Sales increased in the 13 weeks ended April 24, 2021 due to the Fairway acquisition on May 14, 2020an increase in same store sales of 2.3% partially offset by a same store sales decrease of 5.5%.
Sales were $1,494,047 in the 39 weeks ended April 24, 2021, an increase of 14.7% compared to the 39 weeks ended April 25, 2020. Sales increased in the 39 weeks ended April 24, 2021 due to the Fairway acquisition on May 14, 2020, the openingclosure of the Stroudsburg replacement store on November 1, 2019 and a same store sales increase of 2.3%.
Same store sales decreased in the 13 weeks ended April 24, 2021 due primarily to the unprecedented sales levels at the beginning of the COVID-19 outbreak in our trade area in March 2020. Since the beginning of the COVID-19 pandemic, we have experienced higher average basket sizes and decreased transaction counts as customers have consolidated shopping trips. Additionally, digital sales growth accelerated through both ShopRite from Home and partnerships with online grocery picking and delivery services, increasing 127% and 155% in the 13 and 39 weeks ended April 24, 2021, respectively, compared to the 13 and 39 weeks ended April 25, 2020. During the COVID-19 pandemic, sales at Fairway and Gourmet Garage locations in Manhattan during the 13 and 39 weeks ended April 24, 2021 have been significantly negatively impacted due primarily to residential population migration out of the city and less commuter and tourist traffic.
Silver Spring, Maryland store. On a two-year stacked basis, same store sales increased 7.7% and 7.4%9.1% in the 13 and 39 weeks ended April 24,October 30, 2021. Same store digital sales were flat the 13 weeks ended October 30, 2021 respectively, compared to the 13 and 39 weeks ended April 27, 2019.October 24, 2020, but increased 153% on a two-year stacked basis.
The Company expects same store salesFood inflation and increased Supplemental Nutrition Assistance Program ("SNAP") benefits continue to positively impact sales. Increased transaction counts were partially offset by decreased basket sizes as we cycled against the initial months following the COVID-19 outbreak in fiscal 2021 to range from an increase of 1.0% to 2.0% compared to fiscal 2020.our trade area. New stores and replacement stores are included in same store sales in the quarter after the store has been in operation for four full quarters. Store renovations and expansions are included in same store sales immediately.
Gross Profit. Gross profit as a percentage of sales decreased .61%increased .21% in the 13 weeks ended April 24,October 30, 2021 compared to the 13 weeks ended April 25, 2020. Higher margins associated with Fairway increased gross profit (.70%) despite higher costs as we transition and integrate commissary operations into our business. Excluding the impact of Fairway, gross profit as a percentage of sales decreased 1.31%October 24, 2020 due primarily to decreasedincreased departmental gross margin percentages (1.00%(.68%), a favorable change in product mix (.08%) and lower promotional spending (.03%) partially offset by increased warehouse assessment charges from Wakefern (.59%) and higher promotional spending (.21%) partially offset by favorable change in product mix (.46%), and increased patronage dividends and rebates received from Wakefern (.03%(.57%). These trends areDepartment gross margins increased due primarily to the disproportionately high sales levels at the beginning of the pandemic during the 13 weeks ended April 25, 2020 which favorably impacted departmental gross profit margins through reduced shrink costs, reduced promotional spending due to decreased sale item penetration, increased sales leverage on fixed warehouse assessment charges from Wakefernpricing initiatives and resultedimprovements in a lesser mix of higher margin perishable items. Additionally, departmental gross profits decreased due partly to continued price investments as part of ShopRite's Right Price Promise pricing strategy.
Gross profit as a percentage of sales decreased .07% in the 39 weeks ended April 24, 2021 compared to the 39 weeks ended April 25, 2020. Higher margins associated with Fairway increased gross profit (.62%) despite higher costs as we transition and integrate commissary operations into our business. Excluding the impact of Fairway, gross profit as a percentage of sales decreased .70% due primarily to decreased departmental gross margin percentages (.73%), increased warehouse assessment charges from Wakefern (.26%) partially offset by a favorable change in product mix (.14%), lower promotional spending (.12%) and increased patronage dividends and rebates received from Wakefern (.03%). Departmental gross profits decreased due partly to continued price investments as part of from ShopRite's Right Price Promise pricing strategy.operations.
Operating and Administrative Expense. Operating and administrative expense as a percentage of sales increased 1.84%decreased .83% in the 13 weeks ended April 24,October 30, 2021 compared to the 13 weeks ended April 25, 2020. The 13 weeks ended AprilOctober 24, 2021 includes a gain on the sale of a pharmacy prescription list related to the Silver Spring store, net of store closing costs, (.08%) and the 13 weeks ended April 25, 2020 includes a gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March 2020 (.27%) and a pension settlement charge of (.03%). Excluding these items, operating and administrative expense as a percentage of sales increased 1.68% in the 13 weeks ended April 24, 2021 compared to the 13 weeks ended April 25, 2020 due primarily to increased occupancylower payroll costs as a result of the Fairway acquisition (0.99%(.89%), and less advertising spending (.11%) partially offset by increased external fees and transportation costs associated with digital sales (.54%), increased payroll (.83%) and increased facility costs, including utilities, repairs and maintenance (.36%), partially offset by decreased costs related to COVID-19, including enhanced wages and benefits, security and outside sanitation services (1.13%(.16%). Payroll and facilities costs increased primarilydecreased due to reduced sales leverage, increasingproductivity initiatives and labor shortages despite minimum wage rates and the addition of Fairway.demand driven pay rate increases.
Operating and administrative expense as a percentage of sales increased .51% in the 39 weeks ended April 24, 2021 compared to the 39 weeks ended April 25, 2020. The 39 weeks ended April 24, 2021 includes a gain on the sale of a pharmacy prescription list related to the Silver Spring store, net of store closing costs, (.03%) and the 39 weeks ended April 25, 2020 includes a gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March 2020 (.09%), a non-cash pension charge related to the termination of a company-sponsored pension plan and other pension settlement charges (.10%) (see note 4 to the consolidated financial statements), pre-opening costs of the Stroudsburg, Pennsylvania replacement store (.10%) and store closure costs and charges to write off the lease asset and related obligations for the old Stroudsburg store (.06%). Excluding these items, operating and administrative expense as a percentage of sales increased .71% in the 39 weeks ended April 24, 2021 compared to the 39 weeks ended April 25, 2020 due primarily to increased occupancy costs due primarily to the Fairway acquisition (.85%) and increased external fees and transportation costs associated with digital sales (.49%), partially offset by decreased costs related to COVID-19, including enhanced wages and benefits, security and outside sanitation services (.30%) and lower payroll and fringe benefit costs (.30%). Payroll and fringe benefits decreased primarily due to leverage from higher sales and reductions in service department offerings partially offset by the addition of Fairway and growth of ShopRite from Home.
Depreciation and Amortization. Depreciation and amortization expense increaseddecreased in the 13 and 39 weeks ended April 24,October 30, 2021 compared to the 13 and 39 weeks ended April 25,October 24, 2020 due primarily to depreciation related toclosure of the Fairway acquisition.Silver Spring, Maryland ShopRite in February 2020.
Interest Expense. Interest expense increased in the 13 and 39 weeks ended April 24,October 30, 2021 was flat compared to the 13 and 39 weeks ended April 25, 2020 due primarily to interest expense related to the credit agreement entered into on May 6, 2020 (see note 7 to the consolidated financial statements).October 24, 2020.
Interest Income. Interest income decreasedincreased in the 13 and 39 weeks ended April 24,October 30, 2021 compared to the 13 and 39 weeks ended April 25,October 24, 2020 due primarily to lower interest rates forlarger amounts invested in variable rate notes receivable from Wakefern and demand deposits invested at Wakefern.
Income Taxes. The effective income tax rate was 31.5% and 30.3%30.7% in the 13 and 39 weeks ended April 24,October 30, 2021 compared to 28.4% and 28.9%29.9% in the 13 and 39 weeks ended April 25, 2020, respectively.October 24, 2020. The increase in the effective income tax rate is due primarily to favorable return to provision adjustmentsgreater apportionment in the 13 and 39 weeks ended April 25, 2020.higher state tax rate jurisdictions.
Net Income. Net income was $2,574$7,328 in the 13 weeks ended April 24,October 30, 2021 compared to $11,152$3,360 in the 13 weeks ended April 25, 2020. The 13 weeks ended AprilOctober 24, 2021 includes a gain on the sale of a pharmacy prescription list related to the Silver Spring store, net of store closing costs, of $278 (net of tax) and the 13 weeks ended April 25, 2020 includes a gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March 2020 of $854 (net of tax) and pension settlement charges of $83 (net of tax). Excluding these items, net income decreased 78% in the 13 weeks ended April 24, 2021 compared to the prior year. Net income decreased compared to the prior year period due primarily to the sharp rise2.3% increase in same store sales, volumes at the beginning of the COVID-19 pandemic in March 2020 that resulted in higher gross profit margins and sales leverage on operating expenses during the 13 weeks ended April 25, 2020. Additionally, the 13 weeks ended April 24, 2021
were negatively impacted by lower sales volumes in Manhattan and higher costs as we transition and integrate commissary operations into our business.
payroll costs.
Net income was $10,490 in the 39 weeks ended April 24, 2021 compared to $15,724 in the 39 weeks ended April 25, 2020. The 39 weeks ended April 24, 2021 includes a gain on the sale of a pharmacy prescription list related to the Silver Spring store, net of store closing costs, of $278 (net of tax). The 39 weeks ended April 25, 2020 includes a gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March 2020 of $854 (net of tax), a non-cash pension charge related to the termination of a company-sponsored pension plan and other pension settlement charges of $954 (net of tax), pre-opening costs related to the Stroudsburg, Pennsylvania replacement store of $891 (net of tax) and store closure costs and charges to write off the lease asset and related obligations for the old Stroudsburg store of $557 (net of tax). Excluding these items, net income decreased 40% in the 39 weeks ended April 24, 2021 compared to the prior year. Net income decreased due primarily to lower sales volumes in Manhattan and higher costs as we transition and integrate commissary operations into our business.
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 25, 2020.31, 2021. As of April 24,October 30, 2021, there have been no changes to the critical accounting policies contained therein.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $32,995$7,887 in the 3913 weeks ended April 24,October 30, 2021 compared to $59,404net cash used in operating activities of $3,353 in the corresponding period of the prior year. The change in cash flows from operating activities in fiscal 20212022 was primarily due to changes in working capital and lowerhigher net income. Working capital changes, including Other assets and liabilities, decreased cash flows from operating activities by $3,820$8,281 in fiscal 20212022 compared to an increasea decrease of $16,965$15,530 in fiscal 2020.2021. The change in impact of working capital is due primarily to the significant increasechanges in inventory turnover in March and April 2020 at the beginningtiming of the COVID-19 outbreak that lowered stock levels and increasedpayments of accounts payable to Wakefern.
During the 3913 weeks ended April 24,October 30, 2021, Village used cash to fund capital expenditures of $14,901,$13,343, dividends of $9,785,$3,264, principal payment of long-term debt of $6,459$1,999 and additional investments of $1,708$592 in notes receivable from Wakefern. Capital expenditures primarily include costs associated with the integrationpurchase of Fairway stores, completion of one major remodel, continued expansion of ShopRite from Home and self-checkout.
Village has budgeted capital expenditures of $25,000 in fiscal 2021. Planned expenditures include several smaller remodels,the Galloway store shopping center, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.
The Company’s primary sources of liquidity
We expect capital expenditures to range from $40,000 to $60,000 in fiscal 2021 are expected2022, dependent on the timing and completion of potential real estate transactions related to be cashnew and cash equivalents on hand at April 24, 2021existing stores. Planned expenditures include three major remodels, several smaller store remodels, the purchase of the Galloway store shopping center, one new Gourmet Garage store, continued expansion of ShopRite from Home and operating cash flow generated in fiscal 2021.self-checkout, and various merchandising, technology, equipment and facility upgrades.
At April 24,October 30, 2021, the Company held variable rate notes receivable due from Wakefern of $27,022$27,635 that earn interest at the prime rate plus 1.25% and mature on August 15, 2022 and $27,694$28,252 that earn interest at the prime rate plus .75% and mature on February 15, 2024. Wakefern has the right to prepay these notes at any time. Under certain conditions, the Company can require Wakefern to prepay the notes, although interest earned since inception would be reduced as if it was earned based on overnight money market rates as paid by Wakefern on demand deposits.
Working capital was $40,693$68,358 at April 24,October 30, 2021 compared to $34,522$44,023 at July 25, 2020.31, 2021. Working capital ratios at the same dates were 1.271.44 and 1.211.29 to one, respectively. The increase in working capital in fiscal 2022 compared to fiscal 2021 is due primarily to $27,635 in notes receivable from Wakefern that have been reclassified to current assets as they mature on August 15, 2022. The Company’s working capital needs are reduced, since inventories are generally sold by the time payments to Wakefern and other suppliers are due.
Credit Facility
On May 6, 2020, Village entered into a credit agreement (the “Credit Facility”) with Wells Fargo National Bank, National Association (“Wells Fargo”) that supersedes in its entirety the prior credit agreement with Wells Fargo dated November 9, 2017. The principal purpose of the Credit Facility is to finance general corporate and working capital requirements and Village’s acquisition of certain Fairway assets.Markets assets, including five stores and a production distribution center. Among other things, the Credit Facility provides for a maximum loan amount of $150,500 as further set forth below:
•An unsecured revolving line of credit providing a maximum amount available for borrowing of $125,000. Indebtedness under this agreement bears interest at the applicable LIBOR rate plus 1.10% and expires on May 6, 2025.
•An unsecured term loan with a maximum loan amount of $25,500. On May 12, 2020, Village executed a $25,500 term note, repayable in equal monthly installments based on a seven-year amortization schedule through May 4, 2027 and bearing interest at the applicable LIBOR rate plus 1.35%. Additionally, Village executed an interest rate swap for a notional amount equal to the term loan amount that fixes the base LIBOR rate at .41% per annum through May 4, 2027, resulting in a fixed effective interest rate of 1.76% on the term note.
•On September 1, 2020, Village converted $50,000 of its revolving line of credit to a secured converted term loan. The conversion reduced the maximum amount available for borrowing under the revolving line of credit from $125,000 to $75,000. The term loan bears interest at the applicable LIBOR rate plus 1.50% and is repayable in equal monthly installments based on a fifteen-year amortization schedule beginning on the conversion date. Additionally, Village previously executed a forward interest rate swap, effective on the conversion date, for a notional amount equal to the term loan amount that fixes the base LIBOR rate at .69% per annum for 15 years, resulting in a fixed effective interest rate of 2.19% on the converted term loan. The term loan is secured by real properties of Village Super Market, Inc. and its subsidiaries, including the sites of three Village stores.
The Credit Facility also provides for up to $25,000 of letters of credit ($7,336 outstanding at April 24,October 30, 2021), which secure obligations for store leases and construction performance guarantees to municipalities. The Credit Facility contains covenants that, among other conditions, require a minimum tangible net worth, a minimum fixed charge coverage ratio and a maximum adjusted debt to EBITDAR ratio. The Company was in compliance with all covenants of the credit agreement at April 24,October 30, 2021.
Based on current trends, the Company believes cash and cash equivalents on hand at October 30, 2021, operating cash flow and availability under our Credit Facility are sufficient to meet our liquidity needs for the next twelve months and for the foreseeable future beyond the next twelve months.
There have been no other substantial changes as of April 24,October 30, 2021 to the contractual obligations and commitments discussed in the Company’s Annual Report on Form 10-K for the year ended July 25, 2020.31, 2021.
OUTLOOK
This Form 10-Q contains certain forward-looking statements about Village’s future performance. These statements are based on management’s assumptions and beliefs in light of information currently available. Such statements relate to, for example: same store sales; economic conditions; expected pension plan contributions; projected capital expenditures; cash flow requirements; inflation expectations; and legal matters; and are indicated by words such as “will,” “expect,” “should,” “intend,” “anticipates,” “believes” and similar words or phrases. The Company cautions the reader that there is no assurance that actual results or business conditions will not differ materially from the results expressed, suggested or implied by such forward-looking statements. The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof.
•The Company expectsDue to continued uncertainties in the extent and duration of the COVID-19 pandemic and its impact on our business, we will not provide same store sales inguidance for fiscal 20212022.
•We expect capital expenditures to range from an increase of 1.0%$40,000 to 2.0%.
•Excluding the impact of acquired stores, we expect decreased gross profit margins due to continued investments$60,000 in retail pricing through the Right Price Promise commitment to everyday low pricingfiscal 2022, dependent on the items customerstiming and completion of potential real estate transactions related to new and existing stores. Planned expenditures include three major remodels, several smaller store remodels, the purchase most frequently that was introduced in October 2019.of the Galloway store shopping center, one new Gourmet
•We have budgeted capital expenditures of $25,000 in fiscal 2021. Planned expenditures include several smaller remodels,Garage store, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.
•The Board’s current intention is to continue to pay quarterly dividends in 20212022 at the most recent rate of $.25 per Class A and $.1625 per Class B share.
•We believe cash and cash equivalents on hand, operating cash flow and the Company's Credit Facility will be adequate to meet anticipated requirements for working capital, capital expenditures and debt payments for the foreseeable future.
•We expect our effective income tax rate in fiscal 20212022 to be in the range of 30.0%30.5% - 31.0%31.5%.
•We expect approximately $1,400$15,891 of net periodic pension costs in fiscal 20212022 related to the three Company sponsored defined benefit pension plans.plans, including a $15,155 non-cash, pre-tax settlement charge representing the remaining unrecognized losses within accumulated other comprehensive loss related to a plan termination expected to occur during fiscal 2022. The Company expects contributionswill fully fund this plan and liquidate all plan assets to its defined benefit pensionpurchase annuity contracts from an insurance company for all participants who do not elect a lump sum distribution. As of July 31, 2021, the funded status of this plan was a net liability of $3,844. Contributions to the remaining plans are expected to be immaterial in fiscal 2021.2022.
Various uncertainties and other factors could cause actual results to differ from the forward-looking statements contained in this report. These include:
•The Company operates in and around one of the epicenters of the COVID-19 health crisis. The Company is classified as an essential business and has remained open to serve our customers and the communities in which we operate. The continuing impact on our business, including the length and impact of stay-at-home orders and/or regional quarantines, labor shortages and employment trends, disruptions to supply chains, higher operating costs, the form and impact of economic stimulus and general overall economic instability, is uncertain at this time and could have a material adverse effect on our business, results of operations, financial condition and cash flows. Furthermore, the impact of the COVID-19 health crisis may exacerbate other risks and uncertainties included herein, which could have a material effect on the Company.
•The Fairway acquisition involves a number of risks, uncertainties and challenges, including under-performance relative to our expectations, additional capital requirements, unforeseen expenses or delays, imprecise assumptions or our inability to achieve projected cost savings or other synergies, competitive factors in the marketplace and difficulties integrating the business, including merging company cultures, cultivating brand strategy, expansion of food production and conforming the acquired company's technology, standards, processes, procedures and controls. Sales and operating profits have underperformed compared to initial expectations due primarily to residential population migration out of Manhattan and less commuter and tourist traffic during the COVID-19 pandemic. Many of these potential circumstances are outside of our control and any of them could result in an adverse impact on our results of operations, financial condition and cash flows and the diversion of management time and resources.
•The supermarket business is highly competitive and characterized by narrow profit margins. Results of operations may be materially adversely impacted by competitive pricing and promotional programs, industry consolidation and competitor store openings. Village competes directly with multiple retail formats both in-store and online, including national, regional and local supermarket chains as well as warehouse clubs, supercenters, drug stores, discount general merchandise stores, fast food chains, restaurants, dollar stores and convenience stores. Some of these competitors have greater financial resources, lower merchandise acquisition costs and lower operating expenses than we do.
•The Company’s stores are concentrated in New Jersey, New York, Pennsylvania and Maryland. We are vulnerable to economic downturns in these states in addition to those that may affect the country as a whole. Economic conditions such as inflation, deflation, interest rate fluctuations, movements in energy costs, social programs, minimum wage legislation, unemployment rates, disturbances due to social unrest and changing demographics may adversely affect our sales and profits.
•Village purchases substantially all of its merchandise from Wakefern. In addition, Wakefern provides the Company with support services in numerous areas including advertising, liability and property insurance, supplies, certain equipment purchasing, coupon processing, certain financial accounting applications, retail technology support, and other store services. Further, Village receives patronage dividends and other product incentives from Wakefern and also has demand deposits and notes receivable due from Wakefern.
Any material change in Wakefern’s method of operation or a termination or material modification of Village’s relationship with Wakefern could have an adverse impact on the conduct of the Company’s business and could involve additional expense for Village. The failure of any Wakefern member to fulfill its obligations to Wakefern or a member’s insolvency or withdrawal from Wakefern could result in increased costs to the Company. Additionally, an adverse change in Wakefern’s results of operations or solvency could have an adverse effect on Village’s results of operations.
•Approximately 90%89% of our employees are covered by collective bargaining agreements. Any work stoppages could have an adverse impact on our financial results. If we are unable to control health care and pension costs provided for in the collective bargaining agreements, we may experience increased operating costs.
•The Company could be adversely affected if consumers lose confidence in the safety and quality of the food supply chain. The real or perceived sale of contaminated food products by us could result in a loss of consumer confidence and product liability claims, which could have a material adverse effect on our sales and operations.
•Certain of the multi-employer plans to which we contribute are underfunded. As a result, we expect that contributions to these plans may increase. Additionally, the benefit levels and related items will be issues in the negotiation of our collective bargaining agreements. Under current law, an employer that withdraws or partially withdraws from a multi-employer pension plan may incur a withdrawal liability to the plan, which represents the portion of the plan’s underfunding that is allocable to the withdrawing employer under very complex actuarial and allocation rules. The failure of a withdrawing employer to fund these obligations can impact remaining employers. The amount of any increase or decrease in our required contributions to these multi-employer pension plans will depend upon the outcome of collective bargaining, actions taken by trustees who manage the plans, government regulations, withdrawals by other participating employers and the actual return on assets held in the plans, among other factors.
•The Company uses a combination of insurance and self-insurance to provide for potential liability for workers’ compensation, automobile and general liability, property, director and officers’ liability, and certain employee health care benefits. Any projection of losses is subject to a high degree of variability. Changes in legal claims, trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, and insolvency of insurance carriers could all affect our financial condition, results of operations, or cash flows.
•Our long-lived assets, primarily store property, equipment and fixtures, are subject to periodic testing for impairment. Failure of our asset groups to achieve sufficient levels of cash flow could result in impairment charges on long-lived assets.
•Our goodwill and indefinite-lived intangible assets are tested at the end of each fiscal year, or more frequently if circumstances dictate, for impairment. Failure of acquired businesses to achieve their forecasted expectations could result in impairment charges to goodwill and indefinite-lived intangible assets.
•Our effective tax rate may be impacted by the results of tax examinations and changes in tax laws.
•Wakefern provides all members of the cooperative with information system support that enables us to effectively manage our business data, customer transactions, ordering, communications and other business processes. These information systems are subject to damage or interruption from power outages, computer or telecommunications failures, computer viruses and related malicious software, catastrophic weather events, or human error. Any material interruption of our or Wakefern’s information systems could have a material adverse impact on our results of operations.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Exchange Act, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures at the end of the period. This evaluation was carried out under the supervision, and with the participation, of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer. Based upon that evaluation, the Company’s Chief Executive Officer, along with the Company’s Chief Financial Officer, concluded that the Company’s disclosure controls and procedures are effective.
Disclosure controls and procedures are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
There have been no changes in the Company’s internal control over financial reporting during the quarter ended April 24,October 30, 2021 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 first quarter of fiscal 2022 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 Plans or Programs (3) | |
August 1, 2021 to August 28, 2021 | | — | | $— | | — | | $3,202,713 | |
August 29, 2021 to September 25, 2021 | | — | | $— | | — | | $3,202,713 | |
September 26, 2021 to October 30, 2021 | | 4,002 | | $22.12 | | — | | $3,202,713 | |
Total | | 4,002 | | $22.12 | | — | | $3,202,713 | |
(1) The reported periods conform to our fiscal calendar.
(2) Includes shares surrendered to the Company to cover employee related taxes withheld on vested restricted stock.
(3) Includes amount remaining under the $5.0 million repurchase program of the Company's Class A Common Stock authorized by the Board of Directors and announced on September 13, 2019 . 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 | |
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Exhibit 31.1 | | |
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Exhibit 31.2 | | |
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Exhibit 32.1 | | |
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Exhibit 32.2 | | |
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Exhibit 99.1 | | |
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101 INS | XBRL Instance | |
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101 SCH | XBRL Schema | |
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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: June 3,December 8, 2021 | /s/ Robert P. Sumas |
| Robert P. Sumas |
| (Chief Executive Officer) |
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Dated: June 3,December 8, 2021 | /s/ John Van Orden |
| John Van Orden |
| (Chief Financial Officer) |