Weis Markets 10Q 2021 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 25, 2021

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to_________

Commission File Number 1-5039

WEIS MARKETS, INC.

(Exact name of registrant as specified in its charter)


Pennsylvania		24-0755415
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1000 S. Second Street
P. O. Box 471		17801-0471
Sunbury, Pennsylvania		(Zip Code)
(Address of principal executive offices)


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

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

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

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


Large accelerated filer [ ]		Accelerated filer [X]
Non-accelerated filer [ ]		Smaller reporting company [ ]
		Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

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


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

As of November 4, 2021, there were issued and outstanding 26,898,443 shares of the registrant’s common stock.

WEIS MARKETS, INC.

TABLE OF CONTENTS


FORM 10-Q		Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets		1
Consolidated Statements of Income		2
Consolidated Statements of Comprehensive Income		3
Consolidated Statements of Shareholders’ Equity		4
Consolidated Statements of Cash Flows		5
Notes to Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3. Quantitative and Qualitative Disclosures about Market Risk		17
Item 4. Controls and Procedures		17
Part II. Other Information
Item 6. Exhibits		18
Signatures		19
Exhibit 31.1 Rule 13a-14(a) Certification – CEO
Exhibit 31.2 Rule 13a-14(a) Certification – CFO
Exhibit 32 Certification Pursuant to 18 U.S.C. Section 1350

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WEIS MARKETS, INC.

PART I – FINANCIAL INFORMATION

ITEM I – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(unaudited)


(amounts in thousands, except shares)	September 25, 2021		December 26, 2020
Assets
Current:
Cash and cash equivalents	$	172,568	$	136,612
Marketable securities		117,484		111,855
SERP investment		26,383		22,764
Accounts receivable, net		45,411		56,760
Inventories		257,863		269,024
Prepaid expenses and other current assets		29,247		29,187
Total current assets		648,956		626,202
Property and equipment, net		956,343		924,429
Operating lease right-to-use		197,118		199,901
Goodwill		52,330		52,330
Intangible and other assets, net		17,368		17,559
Total assets	$	1,872,115	$	1,820,421

Liabilities
Current:
Accounts payable	$	197,664	$	221,566
Accrued expenses		44,631		50,591
Operating leases		39,855		39,165
Accrued self-insurance		21,976		19,306
Deferred revenue, net		7,586		10,583
Income taxes payable		15,221		5,058
Total current liabilities		326,933		346,269
Postretirement benefit obligations		28,953		25,757
Accrued self-insurance		20,265		20,297
Operating leases		165,062		169,064
Deferred income taxes		110,948		103,404
Other		13,303		9,515
Total liabilities		665,464		674,306
Shareholders’ Equity
Common stock, no par value, 100,800,000 shares authorized, 33,047,807 shares issued, 26,898,443 shares outstanding		9,949		9,949
Retained earnings		1,344,956		1,283,737
Accumulated other comprehensive income (Net of deferred taxes of $1,031 in 2021 and $1,299 in 2020)		2,603		3,286
		1,357,508		1,296,972
Treasury stock at cost, 6,149,364 shares		(150,857)		(150,857)
Total shareholders’ equity		1,206,651		1,146,115
Total liabilities and shareholders’ equity	$	1,872,115	$	1,820,421

See accompanying notes to Consolidated Financial Statements.

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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


		13 Weeks Ended			39 Weeks Ended
(amounts in thousands, except shares and per share amounts)		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020
Net sales	$	1,063,452	$	1,002,387	$	3,117,141	$	3,086,910
Cost of sales, including advertising, warehousing and distribution expenses		780,320		728,054		2,285,428		2,255,544
Gross profit on sales		283,132		274,333		831,713		831,366
Operating, general and administrative expenses		244,164		231,527		715,353		695,130
Income from operations		38,968		42,806		116,360		136,236
Investment income (loss) and interest expense		608		1,890		4,360		937
Other income (expense)		(401)		(1,218)		(3,007)		(1,160)
Income before provision for income taxes		39,175		43,478		117,713		136,013
Provision for income taxes		10,668		12,142		31,479		36,516
Net income	$	28,507	$	31,336	$	86,234	$	99,497

Weighted-average shares outstanding, basic and diluted		26,898,443		26,898,443		26,898,443		26,898,443
Cash dividends per share	$	0.31	$	0.31	$	0.93	$	0.93
Basic and diluted earnings per share	$	1.06	$	1.16	$	3.21	$	3.70

See accompanying notes to Consolidated Financial Statements.

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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	13 Weeks Ended				39 Weeks Ended
(amounts in thousands)		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020
Net income	$	28,507	$	31,336	$	86,234	$	99,497
Other comprehensive income (loss) by component, net of tax:
Available-for-sale marketable securities
Unrealized holding gains (losses) arising during period (Net of deferred taxes of $39 and $143, respectively for the thirteen weeks ended and $268 and $575, respectively for the thirty-nine weeks ended)		(103)		362		(683)		1,479
Other comprehensive income gain (loss), net of tax		(103)		362		(683)		1,479
Comprehensive income, net of tax	$	28,404	$	31,698	$	85,551	$	100,976

See accompanying notes to Consolidated Financial Statements.

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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited)


						Accumulated
(amounts in thousands, except shares)						Other						Total
For the Thirteen Weeks Ended	Common Stock			Retained		Comprehensive		Treasury Stock				Shareholders’
September 25, 2021 and September 26, 2020	Shares	Amount		Earnings		Income (Loss)		Shares		Amount		Equity
Balance at June 26, 2021	33,047,807	$	9,949	$	1,324,787	$	2,706		6,149,364	$	(150,857)	$	1,186,585
Net Income	—		—		28,507		—		—		—		28,507
Other comprehensive income (loss), net of tax	—		—		—		(103)		—		—		(103)
Dividends paid	—		—		(8,339)		—		—		—		(8,339)
Balance at September 25, 2021	33,047,807	$	9,949	$	1,344,956	$	2,603		6,149,364	$	(150,857)	$	1,206,651

Balance at June 27, 2020	33,047,807	$	9,949	$	1,249,657		2,598		6,149,364	$	(150,857)	$	1,111,347
Net income	—		—		31,336		—		—		—		31,336
Other comprehensive income (loss), net of tax	—		—		—		362		—		—		362
Dividends paid	—		—		(8,339)		—		—		—		(8,339)
Balance at September 26, 2020	33,047,807	$	9,949	$	1,272,655	$	2,959		6,149,364	$	(150,857)	$	1,134,706


						Accumulated
(amounts in thousands, except shares)						Other					Total
For the Thirty-Nine weeks Ended	Common Stock			Retained		Comprehensive		Treasury Stock			Shareholders’
September 25, 2021 and September 26, 2020	Shares	Amount		Earnings		Income (Loss)		Shares	Amount		Equity
Balance at December 26, 2020	33,047,807	$	9,949	$	1,283,737	$	3,286	6,149,364	$	(150,857)	$	1,146,115
Net Income	—		—		86,234		—	—		—		86,234
Other comprehensive income (loss), net of tax	—		—		—		(683)	—		—		(683)
Dividends paid	—		—		(25,016)		—	—		—		(25,016)
Balance at September 25, 2021	33,047,807	$	9,949	$	1,344,956	$	2,603	6,149,364	$	(150,857)	$	1,206,651

Balance at December 28, 2019	33,047,807	$	9,949	$	1,198,173		1,480	6,149,364	$	(150,857)	$	1,058,745
Net income	—		—		99,497		—	—		—		99,497
Other comprehensive income (loss), net of tax	—		—		—		1,479	—		—		1,479
Dividends paid	—		—		(25,016)		—	—		—		(25,016)
Balance at September 26, 2020	33,047,807	$	9,949	$	1,272,655	$	2,959	6,149,364	$	(150,857)	$	1,134,706

See accompanying notes to Consolidated Financial Statements.

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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	39 Weeks Ended
(amounts in thousands)		September 25, 2021		September 26, 2020
Cash flows from operating activities:
Net income	$	86,234	$	99,497
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization		77,232		74,003
(Gain) loss on disposition of fixed assets		524		2,618
Unrealized (gain) loss in value of equity securities		463		1,892
Deferred income taxes		7,812		3,247
Unrealized (gain) loss in SERP		(2,130)		(760)
Changes in operating assets and liabilities:
Inventories		11,161		13,816
Accounts receivable and prepaid expenses		11,289		(1,393)
Accounts payable and other liabilities		(20,868)		4,694
Income taxes		10,164		587
Other		224		(4,020)
Net cash provided by operating activities		182,105		194,181
Cash flows from investing activities:
Purchase of property and equipment		(118,156)		(83,574)
Proceeds from the sale of property and equipment		5,856		308
Purchase of marketable securities		(19,455)		(38,259)
Proceeds from the sale and maturities of marketable securities		12,275		3,690
Purchase of intangible assets		(165)		(127)
Change in SERP investment		(1,488)		(666)
Net cash used in investing activities		(121,133)		(118,628)
Cash flows from financing activities:
Dividends paid		(25,016)		(25,016)
Net cash used in financing activities		(25,016)		(25,016)
Net increase in cash and cash equivalents		35,956		50,537
Cash and cash equivalents at beginning of year		136,612		66,871
Cash and cash equivalents at end of period	$	172,568	$	117,408

See accompanying notes to Consolidated Financial Statements. In the first thirty-nine weeks of 2021, there was $13.5 million cash paid for income taxes compared to $32.7 million in 2020 for the same period. Cash paid for interest related to long-term debt was $24 thousand and $27 thousand in the first thirty-nine weeks of 2021 and 2020, respectively.

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WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(1) Significant Accounting Policies

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

(2) Current Relevant Accounting Standards

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

(3) Marketable Securities

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

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

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

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

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

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

The Company accrues interest on its bond portfolio throughout the life of each bond held. Dividends from the equity securities are recognized as received. Interest, dividends and unrealized gains and losses on equity securities are recognized in “Investment income (loss) and interest expense” on the Company’s Consolidated Statements of Income. The Company recognized investment income of $215 thousand in the thirteen weeks ended September 25, 2021, which included an unrealized loss in equity securities of $381 thousand. In the thirteen weeks ended September 26, 2020, the Company recognized investment income of $680 thousand, which included an unrealized gain in equity securities of $120 thousand. In the thirty-nine weeks ended September 25, 2021, the Company recognized investment income of $1.4 million, which included unrealized loss in equity securities of $463 thousand. In the thirty-nine weeks ended September 26, 2020, the Company recognized investment losses of $196 thousand, which included unrealized losses in equity securities of $1.9 million.

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WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Marketable securities, as of September 25, 2021 and December 26, 2020, consisted of:


			Gross		Gross
(amounts in thousands)	Amortized		Unrealized		Unrealized		Fair
September 25, 2021	Cost		Holding Gains		Holding Losses		Value
Available-for-sale:
Level 1
Equity securities							$	6,947
Level 2
Corporate and municipal bonds	$	106,904	$	4,923	$	(1,290)		110,537
	$	106,904	$	4,923	$	(1,290)	$	117,484


			Gross		Gross
(amounts in thousands)	Amortized		Unrealized		Unrealized		Fair
December 26, 2020	Cost		Holding Gains		Holding Losses		Value
Available-for-sale:
Level 1
Equity securities							$	7,410
Level 2
Corporate and municipal bonds	$	99,861	$	5,723	$	(1,139)		104,445
	$	99,861	$	5,723	$	(1,139)	$	111,855

Maturities of marketable securities classified as available-for-sale at September 25, 2021, were as follows:


	Amortized		Fair
(amounts in thousands)	Cost		Value
Available-for-sale:
Due within one year	$	7,948	$	8,021
Due after one year through five years		52,149		54,463
Due after five years through ten years		46,807		48,053
	$	106,904	$	110,537

SERP Investments

The Company also maintains a non-qualified supplemental executive retirement plan for certain of its associates which allows them to defer income to future periods. Participants in the plans earn a return on their deferrals based on mutual fund investments. The Company chooses to invest in the underlying mutual fund investments to offset the liability associated with the non-qualified deferred compensation plans. Such investments are reported on the Company’s Consolidated Balance Sheets as “SERP investment,” are classified as trading securities and are measured at fair value using Level 1 inputs with gains and losses included in “Investment income (loss) and interest expense” on the Company’s Consolidated Statements of Income. The Company recognized investment income of $401 thousand in the thirteen weeks ended September 25, 2021, and investment income of $1.2 million in the same period in 2020. The Company recognized investment income of $3.0 million and investment income of $1.2 million in the thirty-nine weeks ended September 25, 2021, and September 26, 2020, respectively. The changes in the underlying liability to the associates are recorded in “Other income (expense).”

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WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(4) Accumulated Other Comprehensive Income

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


	Unrealized Gains (Losses)
	on Available-for-Sale
(amounts in thousands)	Marketable Securities
Accumulated other comprehensive income balance as of December 26, 2020	$	3,286

Other comprehensive income (loss)		(683)
Net current period change in other comprehensive income		(683)
Accumulated other comprehensive income balance as of September 25, 2021	$	2,603

(5) Long-Term Debt

On September 1, 2016, Weis Markets entered into a revolving credit agreement with Wells Fargo Bank, National Association (the “Credit Agreement”), which was amended on September 29, 2021, and matures on September 1, 2024. The Credit Agreement provides for an unsecured revolving credit facility with an aggregate principal amount not to exceed $30.0 million with an additional discretionary amount available of $70.0 million. As of September 25, 2021, the availability under the revolving credit agreement was $25.3 million, net of $4.7 million letters of credit. The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company. The Company has not had an obligation on the Credit Agreement since the second fiscal quarter of 2018.

Interest expense related to long-term debt was $8 thousand in each of the thirteen weeks ended September 25, 2021, and September 26, 2020. In the first thirty-nine weeks of 2021 and 2020, interest expense related to long-term debt totaled $24 thousand and $27 thousand, respectively.

(6) Revenue Recognition

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

The following table represents net sales by type of product for the thirteen and thirty-nine weeks ended September 25, 2021, and September 26, 2020:


	13 Weeks Ended
(amounts in thousands)	September 25, 2021				September 26, 2020
Grocery	$	912,984	85.9	%	$	878,378	87.7	%
Pharmacy		99,210	9.3			89,306	8.9
Fuel		49,262	4.6			32,275	3.2
Manufacturing		1,996	0.2			2,428	0.2
Total net sales	$	1,063,452	100.0	%	$	1,002,387	100.0	%



	39 Weeks Ended
(amounts in thousands)	September 25, 2021				September 26, 2020
Grocery	$	2,687,066	86.2	%	$	2,729,626	88.4	%
Pharmacy		296,278	9.5			264,448	8.6
Fuel		127,460	4.1			85,370	2.8
Manufacturing		6,337	0.2			7,466	0.2
Total net sales	$	3,117,141	100.0	%	$	3,086,910	100.0	%

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WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(7) Leases

As of September 25, 2021, the Company leased approximately 50% of its open store facilities under operating leases that expire at various dates through 2036, with the remaining store facilities being owned. These leases generally provide for fixed annual rentals; however, several provide for minimum annual rentals plus variable lease costs related to real estate taxes and insurance as well as contingent rentals based on a percentage of annual sales or increases periodically based on inflation. These variable lease costs are not included in the measurement of the operating lease right-to-use assets or lease liabilities and are charged to the related expense category included in “Operating, general and administrative expenses.” Most of the leases contain multiple renewal options, under which the Company may extend the lease terms from 5 to 20 years. Additionally, the Company has operating leases for certain transportation and other equipment.

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

The following is a schedule of the lease costs included in “Operating, general and administrative expenses” for the thirteen and thirty-nine weeks ended September 25, 2021, and September 26, 2020.


	13 Weeks Ended				39 Weeks Ended
(amounts in thousands)		September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020
Operating lease cost	$	11,511	$	11,504	$	34,029	$	34,554
Variable lease cost		2,812		2,821		8,060		8,355
Lease or sublease income		(2,530)		(2,116)		(7,453)		(6,286)
Net lease cost	$	11,793	$	12,209	$	34,636	$	36,623

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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of Weis Markets, Inc.’s (the “Company”) financial condition and results of operations should be read in conjunction with the unaudited Consolidated Financial Statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q, the Company’s audited Consolidated Financial Statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 26, 2020, filed with the U.S. Securities and Exchange Commission, as well as the cautionary statement captioned "Forward-Looking Statements" immediately following this analysis.

Company Summary

Weis Markets is a conventional supermarket chain that operates 197 retail stores with approximately 24 thousand associates located in Pennsylvania and six surrounding states: Delaware, Maryland, New Jersey, New York, Virginia and West Virginia. Its products include groceries, dairy products, frozen foods, meats, seafood, fresh produce, floral, pharmacy services, deli products, prepared foods, bakery products, beer and wine, fuel and general merchandise items, such as health and beauty care and household products. The store product selection includes national, local and private brands.

The Company advertises its products and promotes its brand through weekly and monthly printed circulars; radio ads; e-mail blasts; and on-line via its web site, social media and mobile applications. The Company promotes by using Everyday Lower Price; Low Price Guarantee; Low, Low Price; and Loyalty programs. The Loyalty program includes reward points that may be redeemed for discounts on items in store, at the Company’s fuel stations or one of its third-party fuel station partners.

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

On March 11, 2020, the World Health Organization declared that the novel coronavirus (COVID-19) had become a pandemic, and on March 13, the U.S. President declared a National Emergency concerning the disease. This resulted in government mandated shutdowns, as well as multiple legislative acts to provide emergency economic assistance for individuals, families and businesses affected by the novel coronavirus pandemic. These events were accretive to our sales and gross profits compared to the time periods preceding the impact of the novel coronavirus pandemic. The Company is not able to speculate how the ensuing economy or unknown future related expenses will affect it after the governmental novel coronavirus pandemic measures have ended.

The Company continues to innovate and remain relevant to industry trends and offering customer convenience by presenting programs like “Weis 2 Go Online” ordering with curbside pickup and home delivery. As of September 25, 2021, the Company offered Weis 2 Go Online curbside pickup in 188 of its locations as well as home delivery with Shipt in 177 locations. Sales in the first thirty-nine weeks of 2021 through Weis 2 Go Online have increased over 15% percent when compared to the same period last year. In September 2021, the Company announced a partnership with DoorDash to offer on-demand grocery delivery, which is currently available in 170 locations.

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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Two-Year Stacked Comparable Store Sales Analysis

Management is providing Comparable Store Sales Two-Year Stacked analysis, a non-GAAP measure, because management believes this metric is useful to investors and analysts. A Comparable Store Sales Two-Year Stacked analysis presents a comparison of results and trends over a longer period of time to demonstrate the effect of the novel coronavirus pandemic on the operating results of the Company. Information presented in the tables below is not intended for use as an alternative to any other measure of performance. It is not recommended that this table be considered a substitute for the Company’s operating results as reported in accordance with GAAP.

Year-over-year and sequential comparisons are the primary calculations used to analyze operating results, however, due to significant fluctuations caused by the novel coronavirus pandemic management believes it is necessary to provide a Two-Year Stacked Comparable Store Sales analysis. The following tables provide the two-year stacked comparable store sales, including and excluding fuel, for the periods ended September 25, 2021, and September 26, 2020, as well as periods ended September 26, 2020, and September 28, 2019, respectively.


	Percentage Changes
	13 Weeks Ended
		2021 vs. 2020		2020 vs. 2019
Comparable store sales (individual year)		4.6	%	14.8	%
Comparable store sales (two-year stacked)		19.4
Comparable store sales, excluding fuel (individual year)		3.2		15.7	%
Comparable store sales, excluding fuel (two-year stacked)		18.9	%

	Percentage Changes
	39 Weeks Ended
		2021 vs. 2020		2020 vs. 2019
Comparable store sales (individual year)		(0.1)	%	17.3	%
Comparable store sales (two-year stacked)		17.2
Comparable store sales, excluding fuel (individual year)		(1.4)		18.4	%
Comparable store sales, excluding fuel (two-year stacked)		17.0	%

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

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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Results of Operations

Analysis of Consolidated Statements of Income


													Percentage Changes
	13 Weeks Ended						39 Weeks Ended						13 Weeks Ended		39 Weeks Ended
(amounts in thousands, except per share amounts)		September 25, 2021			September 26, 2020			September 25, 2021			September 26, 2020		2021 vs. 2020		2021 vs. 2020
Net sales	$	1,063,452		$	1,002,387		$	3,117,141		$	3,086,910		6.1	%	1.0	%
Cost of sales, including advertising, warehousing and distribution expenses		780,320			728,054			2,285,428			2,255,544		7.2		1.3
Gross profit on sales		283,132			274,333			831,713			831,366		3.2		0.0
Gross profit margin		26.6	%		27.4	%		26.7	%		26.9	%
Operating, general and administrative expenses		244,164			231,527			715,353			695,130		5.5		2.9
O, G & A, percent of net sales		23.0	%		23.1	%		22.9	%		22.5	%
Income from operations		38,968			42,806			116,360			136,236		(9.0)		(14.6)
Operating margin		3.7	%		4.3	%		3.7	%		4.4	%
Investment income (loss) and interest expense		608			1,890			4,360			937		(67.8)		365.3
Investment income (loss) and interest expense, percent of net sales		0.1	%		0.2	%		0.1	%		0.0	%
Other income (expense)		(401)			(1,218)			(3,007)			(1,160)		(67.1)		159.2
Other income (expense), percent of net sales		(0.0)	%		(0.1)	%		(0.1)	%		(0.0)	%
Income before provision for income taxes		39,175			43,478			117,713			136,013		(9.9)		(13.5)
Income before provision for income taxes, percent of net sales		3.7	%		4.3	%		3.8	%		4.4	%
Provision for income taxes		10,668			12,142			31,479			36,516		(12.1)		(13.8)
Effective income tax rate		27.2	%		27.9	%		26.7	%		26.8	%
Net income	$	28,507		$	31,336		$	86,234		$	99,497		(9.0)	%	(13.3)	%
Net income, percent of net sales		2.7	%		3.1	%		2.8	%		3.2	%
Basic and diluted earnings per share	$	1.06		$	1.16		$	3.21		$	3.70		(8.6)	%	(13.2)	%

Net Sales

Individual Year-Over-Year Analysis of Sales


	Percentage Changes
	2021 vs. 2020
September 25, 2021	13 Weeks Ended		39 Weeks Ended
Net sales	6.1	%		1.0	%
Net sales, excluding fuel	4.6			(0.4)
Comparable store sales	4.6			(0.1)
Comparable store sales, excluding fuel	3.2	%		(1.4)	%

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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

According to the latest U.S. Bureau of Labor Statistics’ report, the annual Seasonally Adjusted Food-at-Home Consumer Price Index increased 2.3% compared to a decrease of 1.6% for the same period last year. Even though the U.S. Bureau of Labor Statistics’ index rates may be reflective of a trend, it will not necessarily be indicative of the Company’s actual results. According to the U.S. Department of Energy, the thirteen-week average price of gasoline in the Central Atlantic States increased 36.7% or $0.88 per gallon in the thirteen weeks ended September 25, 2021, compared to the same period in 2020. The average price of gasoline in the Central Atlantic States increased 26.1% or $0.63 per gallon in the first thirty-nine weeks of 2021 when compared to the same period in 2020.

Total net sales increased 6.1% to $1.1 billion for the thirteen weeks ended September 26, 2021, from $1.0 billion for the thirteen weeks ended September 26, 2020. The increase in total net sales was primarily driven by the 4.6% increase excluding fuel which includes an increase in pharmacy sales, driven by increased prescription volume and administering COVID-19 vaccines, and higher fuel sales. Comparable store sales for the thirteen weeks ended September 25, 2021, compared to the same period in 2020 increased 4.6% including fuel and 3.2% excluding fuel.

Total net sales increased 1.0% to $3.1 billion for the thirty-nine weeks ended September 25, 2021 when compared to the similar period in 2020. The increase in total net sales was primarily driven by increased pharmacy prescription volume and administering COVID-19 vaccines, and higher fuel sales, which was partially offset by the 0.4% decrease excluding fuel. Comparable store sales for the first thirty-nine weeks, compared to the same period in 2020, decreased 0.1% including fuel and decreased 1.4% excluding fuel.

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

Cost of Sales and Gross Profit

Cost of sales consists of direct product costs (net of discounts and allowances), net advertising costs, distribution center and transportation costs, as well as manufacturing facility operations.

Gross profit on sales increased 3.2% for the thirteen weeks ended September 25, 2021, compared to the same period in 2020. Gross profit margin decreased to 26.6% in the thirteen weeks ended September 25, 2021, from 27.4% in the thirteen weeks ended September 26, 2020. The decrease in gross profit margin was primarily due to the increased pharmacy and fuel sales, which have a lower gross profit margin than grocery sales, and higher product and supply chain costs.

In the first thirty-nine weeks of 2021, gross profit on sales remained unchanged when compared to the same period in 2020. Gross profit margin decreased to 26.7% in the thirty-nine weeks ended September 25, 2021, from 26.9% in the thirty-nine weeks ended September 26, 2020. The decrease in gross profit margin was primarily due to the increased pharmacy and fuel sales, which have a lower gross profit margin than grocery sales, and higher product and supply chain costs.

Non-cash LIFO inventory valuation adjustments represent expense of $2.0 million in the first thirty-nine weeks of 2021 compared to expense of $2.2 million in the same period in 2020. Although the Company experienced cost inflation and deflation in various commodities for the periods presented, the Company anticipates overall product costs to increase given the recent inflationary indicators in the food retail industry.

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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Operating, General and Administrative Expenses

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

Employee-related costs such as wages, employer paid taxes, health care benefits and retirement plans, comprise approximately 61.5% of the total “Operating, general and administrative expenses.” As a percent of sales, direct store labor decreased 0.2% in the thirteen weeks ended September 25, 2021 when compared to the same period in 2020 and decreased 0.2% when comparing the first thirty-nine weeks of 2021 with the same period in 2020.

Depreciation and amortization expense charged to “Operating, general and administrative expenses” was $23.6 million, or 2.2% of net sales during the thirteen weeks ended September 25, 2021 compared to $23.9 million, or 2.4% of net sales when compared to the same period in 2020. During the first thirty-nine weeks of 2021 and 2020, depreciation and amortization expense charged to “Operating, general and administrative expenses” was $70.6 million, or 2.3% of net sales and $67.3 million, or 2.2% of net sales, respectively. See the Liquidity and Capital Resources section for further information regarding the Company’s capital expenditure program.

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


	13 Weeks Ended
(amounts in thousands)	Increase		Increase (Decrease)
September 25, 2021	(Decrease)		as a % of sales
Utilities expense	$	1,695	0.1	%
Fixed expense (amortization, depreciation, insurance expenses, and occupancy costs)		500	(0.2)

	39 Weeks Ended
(amounts in thousands)	Increase		Increase (Decrease)
September 25, 2021	(Decrease)		as a % of sales
Associate health care benefits	$	8,062	0.3	%
Fixed expense (amortization, depreciation, insurance expenses, and occupancy costs)		4,755	0.1
Utilities expense		2,909	0.1

The Company has recognized increases in its expenses relating to associate health care benefits due to both an increase in claim volume and cost per claim from 2020 to 2021.

Provision for Income Taxes

The effective income tax rate was 27.2% and 27.9% for the thirteen weeks ended September 25, 2021 and September 26, 2020, respectively. The effective income tax rate was 26.7% and 26.8% for the first thirty-nine weeks of 2021 and 2020, respectively. The effective income tax rate differed from the federal statutory rate, primarily due to the effect of state taxes, net of permanent differences.

Liquidity and Capital Resources

The primary source of cash is cash flows generated from operations. In addition, the Company has access to a revolving credit agreement entered into on September 1, 2016, and amended on September 29, 2021, with Wells Fargo Bank, NA (the “Credit Agreement”). The Credit Agreement matures on September 1, 2024, and provides for an unsecured revolving credit facility with an aggregate principal amount not to exceed $30.0 million with an additional discretionary amount available of $70.0 million. As of September 25, 2021, the availability under the revolving credit agreement was $25.3 million with $4.7 million of letters of credit outstanding. The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company. The Company has not had an obligation on the Credit Agreement since the second fiscal quarter of 2018.

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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

The Company’s investment portfolio consists of high-grade bonds with maturity dates between one and 10 years and three long-held high yield, large capitalized public company equity securities. The portfolio totaled $117.5 million as of September 25, 2021. Management anticipates maintaining the investment portfolio but has the ability to liquidate if needed.

The Company’s capital expenditure program includes the construction of new superstores, the expansion and remodeling of existing units, the acquisition of sites for future expansion, new technology purchases and the continued upgrade of the Company’s distribution facilities and transportation fleet. Management currently plans to invest approximately $150 million in its capital expenditure program in 2021.

The Company expects that cash generated from operations and cash available under the Credit Agreement will fund its working capital requirements, debt requirements, capital expenditure program, acquisitions and dividends. The Company has no other commitment of capital resources as of September 25, 2021, other than the lease commitments on its store facilities and transportation equipment under operating leases that expire at various dates through 2036.

The Board of Directors’ 2004 resolution authorizing the repurchase of up to one million shares of the Company’s common stock has a remaining balance of 752,468 shares. In the second fiscal quarter of 2019, the Company entered into a brokerage agreement with Wells Fargo Securities, LLC to facilitate possible share repurchases.

Quarterly Cash Dividends

At its regular meeting held in October, the Board of Directors declared a quarterly dividend of $0.32 per share, payable on November 22, 2021, to shareholders of record on November 8, 2021. The Company expects to continue paying regular cash dividends on a quarterly basis. However, the Board of Directors reconsiders the declaration of dividends quarterly. The Company pays these dividends at the discretion of the Board of Directors and the continuation of these payments and the amount of the dividends depends upon the results of operations, the financial condition of the Company and other factors which the Board of Directors deems relevant.

Cash Flow Information


	39 Weeks Ended
(amounts in thousands)		September 25, 2021		September 26, 2020		2021 vs. 2020
Net cash provided by (used in):
Operating activities	$	182,105	$	194,181	$	(12,076)
Investing activities		(121,133)		(118,628)		(2,505)
Financing activities		(25,016)		(25,016)		—

Operating

Cash flows from operating activities decreased $12.1 million in the first thirty-nine weeks of 2021 compared to the first thirty-nine weeks of 2020. The decrease is primarily due to cycling the impact of the novel coronavirus pandemic.

Investing

In the first thirty-nine weeks of 2021, when compared to the same period in 2020, reinvestment in property and equipment purchases increased $34.6 million and net changes in marketable securities decreased $27.4 million. Additionally, as a percentage of sales, capital expenditures were 3.8% in the first thirty-nine weeks of 2021 and 2.7% in the first thirty-nine weeks of 2020. For the remainder of 2021, the Company plans to increase its marketable securities portfolio.

Financing

The Company paid dividends of $25.0 million in each of the first thirty-nine weeks of 2021 and 2020, respectively.

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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Accounting Policies and Estimates

The Company has chosen accounting policies that it believes are appropriate to accurately and fairly report its operating results and financial position, and the Company applies those accounting policies in a consistent manner. The Significant Accounting Policies are summarized in Note 1 to the Consolidated Financial Statements included in the 2020 Annual Report on Form 10-K. There have been no changes to the Significant Accounting Policies since the Company filed its Annual Report on Form 10-K for the fiscal year ended December 26, 2020.

Forward-Looking Statements

In addition to historical information, this Form 10-Q Report may contain forward-looking statements, which are included pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. For example, risks and uncertainties can arise with changes in: competitive and reputational risks; financial, investment and infrastructure risks; information security, cybersecurity and data privacy risks; supply chain and third-party risks; risks created by pandemics (including the ongoing COVID-19 outbreak and the related responses of governments, consumers, customers, suppliers and employees); and legal, regulatory and other external risks. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s analysis only as of the date hereof. The Company undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in other documents the Company files periodically with the Securities and Exchange Commission.

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WEIS MARKETS, INC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative Disclosure - There have been no material changes in the Company’s market risk during the fiscal quarter ended September 25, 2021. Quantitative information is set forth in Item 7a on the Company’s Annual Report on Form 10-K under the caption “Quantitative and Qualitative Disclosures About Market Risk,” which was filed for the fiscal year ended December 26, 2020, and is incorporated herein by reference.

Qualitative Disclosure - This information is set forth in the Company’s Annual Report on Form 10-K under the caption “Liquidity and Capital Resources,” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which was filed for the fiscal year ended December 26, 2020, and is incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

The Chief Executive Officer and the Chief Financial Officer, together with the Company’s Disclosure Committee, evaluated the Company’s disclosure controls and procedures as of the fiscal quarter ended September 25, 2021. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports was accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

In connection with the evaluation described above, there was no change in the Company’s internal control over financial reporting during the fiscal quarter ended September 25, 2021, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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WEIS MARKETS, INC.

PART II – OTHER INFORMATION

ITEM 6. EXHIBITS

Exhibits


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

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WEIS MARKETS, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		WEIS MARKETS, INC.
		(Registrant)

Date:	11/4/2021	/S/Jonathan H. Weis
		Jonathan H. Weis
		Chairman,
		President and Chief Executive Officer
		(Principal Executive Officer)

Date:	11/4/2021	/S/Michael T. Lockard
		Michael T. Lockard
		Senior Vice President, Chief Financial Officer
		and Treasurer
		(Principal Financial Officer)

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Weis Markets (WMK) 10-Q2021 Q3 Quarterly report

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