Weis Markets (WMK) 10-Q 2023 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 30, 2023

or

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

For the transition period from __________to_________

Commission File Number 1-5039

WEIS MARKETS, INC.

(Exact name of registrant as specified in its charter)

Pennsylvania	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 [X]	Accelerated filer [ ]
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 9, 2023, 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	18
Item 4. Controls and Procedures	18
Part II. Other Information
Item 6. Exhibits	19
Signatures	20
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

WEIS MARKETS, INC.

PART I – FINANCIAL INFORMATION

ITEM I – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(unaudited)

(amounts in thousands, except shares)	September 30, 2023		December 31, 2022
Assets
Current:
Cash and cash equivalents	$	64,291	$	157,997
Marketable securities		219,718		186,419
SERP investment		24,131		22,696
Accounts receivable, net		64,509		50,863
Inventories		303,724		293,274
Prepaid expenses and other current assets		42,617		29,921
Total current assets		718,989		741,170
Property and equipment, net		963,295		970,913
Operating lease right-to-use		181,355		175,952
Goodwill		52,330		52,330
Intangible and other assets, net		18,850		18,785
Total assets	$	1,934,819	$	1,959,150
Liabilities
Current:
Accounts payable	$	144,725	$	206,849
Accrued expenses		37,987		57,431
Operating leases		38,563		43,527
Accrued self-insurance		17,159		19,416
Deferred revenue, net		8,915		11,774
Income taxes payable		6,436		6,354
Total current liabilities		253,786		345,351
Postretirement benefit obligations		26,317		25,270
Accrued self-insurance		23,547		23,712
Operating leases		148,344		142,424
Deferred income taxes		115,938		111,225
Other		8,570		9,334
Total liabilities		576,503		657,316
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		1,505,060		1,449,191
Accumulated other comprehensive income (loss) (Net of deferred taxes of $2,105 in 2023 and $2,342 in 2022)		(5,836)		(6,449)
		1,509,173		1,452,691
Treasury stock at cost, 6,149,364 shares		(150,857)		(150,857)
Total shareholders’ equity		1,358,316		1,301,834
Total liabilities and shareholders’ equity	$	1,934,819	$	1,959,150
See accompanying notes to Consolidated Financial Statements.

1

WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

		13 Weeks Ended			39 Weeks Ended
(amounts in thousands, except shares and per share amounts)		September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
Net sales	$	1,160,306	$	1,150,551	$	3,483,975	$	3,389,853
Cost of sales, including advertising, warehousing and distribution expenses		874,583		862,908		2,613,417		2,516,311
Gross profit on sales		285,723		287,643		870,558		873,542
Operating, general and administrative expenses		256,050		253,985		762,644		750,066
Income from operations		29,673		33,658		107,914		123,476
Investment income (loss) and interest expense		1,409		(1,483)		7,715		(3,394)
Other income (expense)		774		1,214		(1,399)		4,805
Income before provision for income taxes		31,856		33,389		114,230		124,887
Provision for income taxes		8,630		4,731		30,925		28,574
Net income	$	23,226	$	28,658	$	83,305	$	96,313
Weighted-average shares outstanding, basic and diluted		26,898,443		26,898,443		26,898,443		26,898,443
Cash dividends per share	$	0.34	$	0.32	$	1.02	$	0.96
Basic and diluted earnings per share	$	0.86	$	1.07	$	3.10	$	3.58
See accompanying notes to Consolidated Financial Statements.

2

WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	13 Weeks Ended				39 Weeks Ended
(amounts in thousands)		September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
Net income	$	23,226	$	28,658	$	83,305	$	96,313
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 $347 and $547, respectively for the thirteen weeks ended, and $237 and $3,370, respectively for the thirty-nine weeks ended)		(962)		(2,023)		613		(9,143)
Other comprehensive income gain (loss), net of tax		(962)		(2,023)		613		(9,143)
Comprehensive income, net of tax	$	22,264	$	26,635	$	83,918	$	87,170
See accompanying notes to Consolidated Financial Statements.

3

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 30, 2023 and September 24, 2022	Shares	Amount		Earnings		Income (Loss)		Shares		Amount		Equity
Balance at July 1, 2023	33,047,807	$	9,949	$	1,490,979	$	(4,874)		6,149,364	$	(150,857)	$	1,345,198
Net income	—		—		23,226		—		—		—		23,226
Other comprehensive income (loss), net of tax	—		—		—		(962)		—		—		(962)
Dividends paid	—		—		(9,145)		—		—		—		(9,145)
Balance at September 30, 2023	33,047,807	$	9,949	$	1,505,060	$	(5,836)		6,149,364	$	(150,857)	$	1,358,316
Balance at June 25, 2022	33,047,807	$	9,949	$	1,409,403	$	(5,433)		6,149,364	$	(150,857)	$	1,263,062
Net income	—		—		28,658		—		—		—		28,658
Other comprehensive income (loss), net of tax	—		—		—		(2,023)		—		—		(2,023)
Dividends paid	—		—		(8,608)		—		—		—		(8,608)
Balance at September 24, 2022	33,047,807	$	9,949	$	1,429,453	$	(7,456)		6,149,364	$	(150,857)	$	1,281,089

						Accumulated
(amounts in thousands, except shares)						Other					Total
For the Thirty-Nine Weeks Ended	Common Stock			Retained		Comprehensive		Treasury Stock			Shareholders’
September 30, 2023 and September 24, 2022	Shares	Amount		Earnings		Income (Loss)		Shares	Amount		Equity
Balance at December 31, 2022	33,047,807	$	9,949	$	1,449,191	$	(6,449)	6,149,364	$	(150,857)	$	1,301,834
Net income	—		—		83,305		—	—		—		83,305
Other comprehensive income (loss), net of tax	—		—		—		613	—		—		613
Dividends paid	—		—		(27,436)		—	—		—		(27,436)
Balance at September 30, 2023	33,047,807	$	9,949	$	1,505,060	$	(5,836)	6,149,364	$	(150,857)	$	1,358,316
Balance at December 25, 2021	33,047,807	$	9,949	$	1,358,963	$	1,687	6,149,364	$	(150,857)	$	1,219,742
Net income	—		—		96,313		—	—		—		96,313
Other comprehensive income (loss), net of tax	—		—		—		(9,143)	—		—		(9,143)
Dividends paid	—		—		(25,823)		—	—		—		(25,823)
Balance at September 24, 2022	33,047,807	$	9,949	$	1,429,453	$	(7,456)	6,149,364	$	(150,857)	$	1,281,089
See accompanying notes to Consolidated Financial Statements.

4

WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	39 Weeks Ended
(amounts in thousands)		September 30, 2023		September 24, 2022
Cash flows from operating activities:
Net income	$	83,305	$	96,313
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization		81,533		77,604
(Gain) loss on disposition of fixed assets		5		(2,481)
Unrealized (gain) loss in value of equity securities		815		1,590
Deferred income taxes		4,476		(1,711)
Unrealized (gain) loss in SERP		(1,222)		6,082
Changes in operating assets and liabilities:
Inventories		(10,450)		(30,499)
Accounts receivable and prepaid expenses		(26,342)		(3,689)
Accounts payable and other liabilities		(89,437)		(9,802)
Income taxes		81		9,248
Other		359		(344)
Net cash provided by operating activities		43,125		142,311
Cash flows from investing activities:
Purchase of property and equipment		(75,645)		(83,335)
Proceeds from the sale of property and equipment		336		6,710
Purchase of marketable securities		(92,569)		(267,106)
Proceeds from the sale and maturities of marketable securities		58,725		287,124
Purchase of intangible assets		(29)		(944)
Proceeds from sale of intangible assets		—		125
Change in SERP investment		(213)		(507)
Net cash used in investing activities		(109,394)		(57,933)
Cash flows from financing activities:
Dividends paid		(27,436)		(25,823)
Net cash used in financing activities		(27,436)		(25,823)
Net increase (decrease) in cash and cash equivalents		(93,706)		58,555
Cash and cash equivalents at beginning of year		157,997		86,048
Cash and cash equivalents at end of period	$	64,291	$	144,603
See accompanying notes to Consolidated Financial Statements. In the first thirty-nine weeks of 2023, there was $26.4 million cash paid for income taxes compared to $21.7 million in 2022 for the same period. Cash paid for interest related to long-term debt was $25 thousand and $24 thousand in the first thirty-nine weeks of 2023 and 2022, respectively.

5

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 bond and commercial paper portfolio is 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 and commercial paper portfolio throughout the life of each bond and commercial paper 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 gain of $2.2 million in the thirteen weeks ended September 30, 2023, which included an unrealized loss in equity securities of $437 thousand. In the thirteen weeks ended September 24, 2022, the Company recognized investment loss of $261 thousand, which included an unrealized loss in equity securities of $1.4 million. In the thirty-nine weeks ended September 30, 2023, the Company recognized investment income of $6.3 million, which included an unrealized loss in equity securities of $815 thousand. In the thirty-nine weeks ended September 24, 2022, the Company recognized investment income of $1.4 million, which included an unrealized loss in equity securities of $1.6 million.

6

WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
​

Marketable securities, as of September 30, 2023 and December 31, 2022, consisted of:

			Gross		Gross
(amounts in thousands)	Amortized		Unrealized		Unrealized		Fair
September 30, 2023	Cost		Holding Gains		Holding Losses		Value
Available-for-sale:
Level 1
Equity securities							$	4,370
Level 2
Corporate and municipal bonds	$	172,623	$	1,609	$	(10,168)		164,063
Commercial Paper		50,666		618		—		51,285
Total	$	223,289	$	2,227	$	(10,168)	$	219,718

			Gross		Gross
(amounts in thousands)	Amortized		Unrealized		Unrealized		Fair
December 31, 2022	Cost		Holding Gains		Holding Losses		Value
Available-for-sale:
Level 1
Equity securities							$	5,185
Level 2
Corporate and municipal bonds	$	190,025	$	2,110	$	(10,901)		181,234
Total	$	190,025	$	2,110	$	(10,901)	$	186,419

Maturities of marketable securities classified as available-for-sale at September 30, 2023, were as follows:

	Amortized		Fair
(amounts in thousands)	Cost		Value
Available-for-sale:
Due within one year	$	88,980	$	89,498
Due after one year through five years		83,664		79,256
Due after five years through ten years		17,957		15,904
Due after ten years		32,688		30,690
Total	$	223,289	$	215,348

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 loss of $774 thousand in the thirteen weeks ended September 30, 2023, and investment loss of $1.2 million in the same period in 2022. The Company recognized investment income of $1.4 million and investment loss of $4.8 million in the thirty-nine weeks ended September 30, 2023, and September 24, 2022, respectively. The changes in the underlying liability to the associates are recorded in “Other income (expense).”

7

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 (loss) balance as of December 31, 2022	$	(6,449)
Other comprehensive income (loss)		613
Net current period other comprehensive income (loss)		613
Accumulated other comprehensive income (loss) balance as of September 30, 2023	$	(5,836)

(5) Long-Term Debt

On September 1, 2016, Weis Markets entered into a revolving credit agreement with Wells Fargo Bank, N.A. (the “Credit Agreement”), which was amended on September 29, 2023, and matures on October 1, 2027. 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 30, 2023, the availability under the revolving credit agreement was $25.6 million, net of $4.4 million letters of credit. The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company.

Interest expense related to long-term debt was $8 thousand in each of the thirteen weeks ended September 30, 2023, and September 24, 2022. Interest expense related to long-term debt was $25 thousand and $24 thousand in the thirty-nine weeks ended September 30, 2023 and September 24, 2022, 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 tables represent net sales by type of product for the thirteen and thirty-nine weeks ended September 30, 2023, and September 24, 2022:

	13 Weeks Ended
(amounts in thousands)	September 30, 2023				September 24, 2022
Grocery	$	960,072	82.7	%	$	973,707	84.6	%
Pharmacy		133,289	11.5			107,366	9.3
Fuel		64,524	5.6			66,350	5.8
Manufacturing		2,421	0.2			3,128	0.3
Total net sales	$	1,160,306	100.0	%	$	1,150,551	100.0	%
	39 Weeks Ended
(amounts in thousands)	September 30, 2023				September 24, 2022
Grocery	$	2,915,444	83.7	%	$	2,867,699	84.5	%
Pharmacy		380,917	10.9			317,564	9.4
Fuel		179,768	5.2			195,521	5.8
Manufacturing		7,846	0.2			9,069	0.3
Total net sales	$	3,483,975	100.0	%	$	3,389,853	100.0	%

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WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
​

(7) Leases

As of September 30, 2023, the Company leased approximately 49% 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 30, 2023, and September 24, 2022.

	13 Weeks Ended				39 Weeks Ended
(amounts in thousands)		September 30, 2023		September 24, 2022		September 30, 2023		September 24, 2022
Operating lease cost	$	11,778	$	11,978	$	35,351	$	35,633
Variable lease cost		2,837		2,578		8,493		8,165
Lease or sublease income		(2,649)		(2,421)		(7,755)		(7,259)
Net lease cost	$	11,966	$	12,135	$	36,089	$	36,539

��

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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 31, 2022, filed with the U.S. Securities and Exchange Commission, as well as the cautionary statement captioned "Forward-Looking Statements" immediately following this analysis.

Company Summary

Weis Markets is a conventional supermarket chain that operates 197 retail stores with over 23 thousand associates located in Pennsylvania and six surrounding states: Delaware, Maryland, New Jersey, New York, Virginia and West Virginia. Approximately 97% of Weis Markets associates are paid an hourly wage. Its products sold include groceries, dairy products, frozen foods, meats, seafood, fresh produce, floral, pharmacy services at certain locations, 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 promotes competitive pricing by using Everyday Lower Price; Low Price Guarantee; Low, Low Price; 3 Day Sale; senior and military discounts; and Loyalty programs. The Loyalty program includes reward points that may be redeemed for discounts on items in store, at one of the Company’s fuel stations or one of its third-party fuel station partners.

Utilizing its own strategically located distribution center and transportation fleet, Weis Markets self distributes approximately 56% of products with the remaining being supplied by direct store delivery vendors and regional wholesalers. In addition, the Company has three manufacturing facilities which process milk, ice cream and fresh meat products. The corporate offices are located in Sunbury, PA where the Company was founded in 1912.

The COVID-19 pandemic resulted in government mandated shutdowns in early 2020, 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 the Company’s sales and gross profits compared to the time periods preceding the impact of the novel coronavirus pandemic.

The Company continues to innovate and remain relevant to industry trends and offer customer convenience by presenting programs like “Weis 2 Go Online” and home delivery. As of September 30, 2023, the Company offered Weis 2 Go Online in 188 of its locations. Weis 2 Go Online allows the customer to order on-line and then pick up their order at a drive-thru location at the store. The Company also currently offers home delivery to customers in all 197 of its locations via multiple grocery delivery partners.

10

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 and inflationary indicators in the food retail industry, 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 30, 2023, and September 24, 2022, as well as periods ended September 24, 2022, and September 25, 2021, respectively. Comparable store sales increased 0.8 percent on an individual year-over-year basis and increased 8.7 percent on a two-year stacked basis for the thirteen weeks ended September 30, 2023. Comparable store sales increased 2.5 percent on an individual year-over-year basis and increased 11.1 percent on a two-year stacked basis in the thirty-nine weeks ended September 30, 2023.

	Percentage Change
	13 Weeks Ended
		2023 vs. 2022		2022 vs. 2021
Comparable store sales (individual year)		0.8	%	7.9	%
Comparable store sales (two-year stacked)		8.7
Comparable store sales, excluding fuel (individual year)		1.1		6.7	%
Comparable store sales, excluding fuel (two-year stacked)		7.8	%
	Percentage Change
	39 Weeks ended
		2023 vs. 2022		2022 vs. 2021
Comparable store sales (individual year)		2.5	%	8.6	%
Comparable store sales (two-year stacked)		11.1
Comparable store sales, excluding fuel (individual year)		3.1		6.8
Comparable store sales, excluding fuel (two-year stacked)		9.9

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 Change
	13 Weeks Ended						39 Weeks Ended						13 Weeks Ended		39 Weeks Ended
(amounts in thousands, except per share amounts)		September 30, 2023			September 24, 2022			September 30, 2023			September 24, 2022		2023 vs. 2022		2023 vs. 2022
Net sales	$	1,160,306		$	1,150,551		$	3,483,975		$	3,389,853		0.8	%	2.8	%
Cost of sales, including advertising, warehousing and distribution expenses		874,583			862,908			2,613,417			2,516,311		1.4		3.9
Gross profit on sales		285,723			287,643			870,558			873,542		(0.7)		(0.3)
Gross profit margin		24.6	%		25.0	%		25.0	%		25.8	%
Operating, general and administrative expenses		256,050			253,985			762,644			750,066		0.8		1.7
O, G & A, percent of net sales		22.1	%		22.1	%		21.9	%		22.1	%
Income from operations		29,673			33,658			107,914			123,476		(11.8)		(12.6)
Operating margin		2.6	%		2.9	%		3.1	%		3.6	%
Investment income (loss) and interest expense		1,409			(1,483)			7,715			(3,394)		195.0		327.3
Investment income (loss) and interest expense, percent of net sales		0.1	%		(0.1)	%		0.2	%		(0.1)	%
Other income (expense)		774			1,214			(1,399)			4,805		(36.2)		(129.1)
Other income (expense), percent of net sales		0.1	%		0.1	%		(0.0)	%		0.1	%
Income before provision for income taxes		31,856			33,389			114,230			124,887		(4.6)		(8.5)
Income before provision for income taxes, percent of net sales		2.7	%		2.9	%		3.3	%		3.7	%
Provision for income taxes		8,630			4,731			30,925			28,574		82.4		8.2
Effective income tax rate		27.1	%		14.2	%		27.1	%		22.9	%
Net income	$	23,226		$	28,658		$	83,305		$	96,313		(19.0)	%	(13.5)	%
Net income, percent of net sales		2.0	%		2.5	%		2.4	%		2.8	%
Basic and diluted earnings per share	$	0.86		$	1.07		$	3.10		$	3.58		(19.6)	%	(13.4)	%

Net Sales

Individual Year-Over-Year Analysis of Sales

	Percentage Change
	2023 vs. 2022
September 30, 2023	13 Weeks Ended		39 Weeks Ended
Net sales	0.8	%		2.8	%
Net sales, excluding fuel	1.1			3.4
Comparable store sales	0.8			2.5
Comparable store sales, excluding fuel	1.1	%		3.1	%

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)

According to the latest U.S. Bureau of Labor Statistics’ report, the Seasonally Adjusted Food-at-Home Consumer Price Index increased 0.5% and 2.8% for the thirteen week periods ended September 30, 2023 and September 24, 2022, respectively. The Seasonally Adjusted Food-at-Home Consumer Price Index increased 1.0% and 10.6% for thirty-nine week periods ended September 30, 2023 and September 24, 2022, respectively. According to the U.S. Department of Energy, the average price of gasoline in the Central Atlantic States decreased 11.0% or $0.48 per gallon in the thirteen weeks ended September 30, 2023, compared to the same period in 2022. The average price of gasoline in the Central Atlantic States decreased 12.4% or $0.53 per gallon in the first thirty-nine weeks of 2023 when compared to the same period in 2022. Even though the U.S. Bureau of Labor Statistics’ and the U.S. Department of Energy indices may be reflective of a trend, it will not necessarily be indicative of the Company’s actual results.

Total net sales increased 0.8% to $1.2 billion for the thirteen weeks ended September 30, 2023, from $1.2 billion for the thirteen weeks ended September 24, 2022. In the thirty-nine weeks ended September 30, 2023, total net sales increased 2.8% to $3.5 billion from $3.4 billion. The increase in total net sales includes retail price inflation in grocery, pharmacy and fresh product categories. Comparable store sales for the thirteen weeks ended September 30, 2023, compared to the same period in 2022 increased 0.8% including fuel and 1.1% excluding fuel. Comparable store sales for the thirty-nine weeks ended September 30, 2023, compared to the same period in 2022 increased 2.5% including fuel and 3.1% excluding fuel.

Although the Company experienced retail 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. 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 decreased 0.7% and 0.3% for the thirteen and thirty-nine weeks ended September 30, 2023, compared to the same period in 2022. When compared to the thirteen and thirty-nine weeks ended September 24, 2022, gross profit margin for the thirteen and thirty-nine weeks ended September 30, 2023 decreased 0.4% and 0.8%, respectively. The Company experienced degradation in its gross profit margin as product costs increased in the fresh meats and pharmacy departments and lower margin departments, such as pharmacy, increased in the product mix.

Non-cash LIFO inventory valuation adjustments represent expense of $4.3 million in the first thirty-nine weeks of 2023 compared to expense of $11.8 million in the same period in 2022. 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 expenses such as wages, employer paid taxes, health care benefits and retirement plans, comprise approximately 59.7% of the total “Operating, general and administrative expenses.” As a percent of sales, direct store labor increased 0.1% and decreased 0.1% in the thirteen and thirty-nine week periods ended September 30, 2023 when compared to the same periods in 2022, respectively.

Depreciation and amortization expense charged to “Operating, general and administrative expenses” was $24.7 million, or 2.1% of net sales during the thirteen weeks ended September 30, 2023 compared to $23.7 million, or 2.1% of net sales during the thirteen weeks ended September 24, 2022. During the first thirty-nine weeks of 2023 and 2022, depreciation and amortization expense charged to “Operating, general and administrative expenses” was $73.6 million, or 2.1% of net sales and $70.6 million, or 2.1% 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 30, 2023	(Decrease)		as a % of sales
Employee expenses and utilities	$	(5,001)	(0.5)	%
Fixed expense (amortization, depreciation, insurance expenses, and occupancy costs)		3,792	0.3
Other expenses (financial service fees, technology, repairs and maintenance, other income)		3,274	0.2
	39 Weeks Ended
(amounts in thousands)	Increase		Increase (Decrease)
September 30, 2023	(Decrease)		as a % of sales
Employee expenses and utilities	$	(4,538)	(0.5)	%
Fixed expense (amortization, depreciation, insurance expenses, and occupancy costs)		5,400	0.1
Other expenses (financial service fees, technology, repairs and maintenance, other income)		11,716	0.2

Overall, the operating, general and administrative expenses as a percent of sales presented for the thirteen and thirty-nine weeks ended September 30, 2023 have benefited in comparison with the 2022 percent of sales due to the increase in sales. Fixed expense and other expenses have increased in dollars as well as a percent of sales for the thirteen and thirty-nine weeks ended September 30, 2023 mainly due to increased supply chain costs from third party service providers and decreased other income from fewer real estate sales and property insurance claims.

Provision for Income Taxes

The effective income tax rate was 27.1% and 22.9% for the thirty-nine weeks ended September 30, 2023 and September 24, 2022, respectively. The effective income tax rate differed from the federal statutory rate, primarily due to the effect of state taxes, net of permanent differences.

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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Liquidity and Capital Resources

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, 2023, with Wells Fargo Bank, N.A. (the “Credit Agreement”). The Credit Agreement matures on October 1, 2027, 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 30, 2023, the availability under the revolving credit agreement was $25.6 million, net of $4.4 million letters of credit. The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company.

The Company’s investment portfolio consists of high-grade bonds and commercial paper with maturity dates between one and 30 years and four high yield, large capitalized public company equity securities. The portfolio totaled $219.7 million as of September 30, 2023. 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 over $100 million in its capital expenditure program in 2023, including multiple carryover projects from 2022 that were delayed due to labor and supply chain disruptions.

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 30, 2023, 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.

Quarterly Cash Dividends

At its regular meeting held in October, the Board of Directors declared a quarterly dividend of $0.34 per share, payable on November 20, 2023, to shareholders of record on November 6, 2023. The Company expects to continue paying regular cash dividends on a quarterly basis. However, the Board of Directors reconsiders the declaration of dividends quarterly. The Company pays these dividends at the discretion of the Board of Directors and the continuation of these payments and the amount of the dividends depends upon the results of operations, the financial condition of the Company and other factors which the Board of Directors deems relevant.

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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)

Cash Flow Information

	39 Weeks Ended
(amounts in thousands)		September 30, 2023		September 24, 2022		2023 vs. 2022
Net cash provided by (used in):
Operating activities	$	43,125	$	142,311	$	(99,186)
Investing activities		(109,394)		(57,933)		(51,461)
Financing activities		(27,436)		(25,823)		(1,613)

Operating

Cash flows from operating activities decreased $99.2 million in the first thirty-nine weeks of 2023 compared to the first thirty-nine weeks of 2022. The decrease in cash flow from operating activities is primarily due to less net income and settling working capital obligations in the first thirty-nine weeks of 2023 when compared to the same period in 2022.

Investing

In the first thirty-nine weeks of 2023, when compared to the same period in 2022, the purchase of property and equipment, net of proceeds from sales, decreased $1.3 million and the purchases of marketable securities, net of proceeds from sales, increased by $53.9 million. Additionally, as a percent of sales, capital expenditures were 2.2% in the first thirty-nine weeks of 2023 and 2.5% in the first thirty-nine weeks of 2022. The decrease as a percent of sales in 2023 compared to 2022 is due to the increase in sales as well as a decrease in spend resulting from limited availability of raw materials and equipment to complete remodels, supply chain and information technology upgrades, and smaller store improvement projects. For the remainder of 2023, management anticipates maintaining the investment portfolio but has the ability to liquidate if needed.

Financing

The Company paid dividends of $27.4 million and $25.8 million in the first thirty-nine weeks of 2023 and 2022, 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 2022 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 31, 2022.

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 (such as the 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 based on information currently available to us and speak 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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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 30, 2023. 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 31, 2022, 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 31, 2022, 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 30, 2023. 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 30, 2023, 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:	11/9/2023	/S/Jonathan H. Weis
		Jonathan H. Weis
		Chairman,
		President and Chief Executive Officer
		(Principal Executive Officer)
Date:	11/9/2023	/S/Michael T. Lockard
		Michael T. Lockard
		Senior Vice President, Chief Financial Officer
		and Treasurer
		(Principal Financial Officer)

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