What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2022-02-03 · 133 added, 96 removed, 142 unchanged (62% of the section changed)

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In addition, the Company focuses on selling high-growth, high-margin products to its customers through the development of certified organic products, bakery departments and prepared foods including delicatessen sections.

As of December 25, 2021, the Company operated 111 in-store pharmacies and 107 fuel centers.

As of March 26, 2022, the Company operated 111 in-store pharmacies and 107 fuel centers.

Coronavirus (COVID-19) Pandemic Impact

The COVID-19 pandemic which began in March 2020 and has continued through the three months ended December 25, 2021, has impacted supermarket operations, as the Company implemented several enhanced cleaning and social distancing protocols designed to keep our customers and our associates safe.

Since March 2020, the Company’s stores have experienced increased customer traffic and have had experienced occasional product shortages due to supply chain issues.

The COVID-19 pandemic which began in March 2020 and has continued through the six months ended March 26, 2022, has impacted supermarket operations, as the Company implemented several enhanced cleaning and social distancing protocols designed to keep our customers and our associates safe.

Since March 2020, the Company’s stores have experienced increased customer traffic and have experienced occasional product shortages due to supply chain issues.

Recently, an extremely tight labor market has impacted the Company’s ability to attract and retain qualified store personnel, but these impacts have not materially affected our operations.

Finally, as the economy recovers, inflation has reached levels not seen in decades.

Inflation impacts product costs, labor costs and other goods used by the Company.

Finally, as the economy has been recovering from the effects of the pandemic, inflation has reached levels not seen in decades.

Inflation impacts product costs, labor costs and the cost of other goods used by the Company, which could negatively impact our results of operation.

At the present time, we do not know how long and to what extent the pandemic could impact our sales and financial performance.

Critical Accounting Policies

Critical accounting policies are those accounting policies that management believes are important to the presentation of the Company’s financial condition and results of operations, and require management’s most difficult, subjective or complex judgments, often as a result of the need to estimate the effect of matters that are inherently uncertain.

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are those accounting policies and estimates that management believes are important to the presentation of the Company’s financial condition and results of operations, and require management’s most difficult, subjective or complex judgments, often as a result of the need to estimate the effect of matters that are inherently uncertain.

Estimates are based on historical experience and other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

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however, liability coverage is maintained.

At December 25, 2021 the Company’s self-insurance reserves totaled $32.1 million.

At March 26, 2022 the Company’s self-insurance reserves totaled $32.3 million.

This amount is inclusive of $4.2 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable.

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The Company monitors the carrying value of long-lived assets for potential impairment each quarter based on whether any indicators of impairment have occurred.

There were no asset impairments during the three-month period ended December 25, 2021.

There were no asset impairments during the six-month period ended March 26, 2022.

Vendor Allowances

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The purpose of these incentives and allowances is generally to help defray the costs incurred by the Company for stocking, advertising, promoting and selling the applicable vendor’s products.

These allowances generally relate to short term arrangements with vendors, often relating to a period of a month or less, and are negotiated on a purchase-by-purchase or transaction-by-transaction basis.

Whenever practical, vendor discounts and allowances that relate to buying and merchandising activities are recorded as a component of item cost in inventory and recognized in merchandise costs when the item is sold.

These allowances generally relate to short term arrangements with vendors, often relating to a period of one-month or less, and are negotiated on a purchase-by-purchase or transaction-by-transaction basis.

Whenever practicable, vendor discounts and allowances that relate to buying and merchandising activities are recorded as a component of item cost in inventory and recognized in merchandise costs when the item is sold.

Due to the use of the retail method of store inventory and the nature of certain allowances, it is sometimes not practicable to apply allowances to the item cost of inventory.

In those instances, the allowances are applied as a reduction of merchandise costs using a rational and systematic methodology, which results in the recognition of these incentives when the inventory related to the vendor consideration received is sold.

Vendor allowances applied as a reduction of merchandise costs totaled $31.9 million and $29.7 million for the fiscal quarters ended December 25, 2021 and December 26, 2020, respectively.

Vendor advertising allowances that represent a reimbursement of specific identifiable incremental costs of advertising the vendor’s specific products are recorded as a reduction to the related expense in the period in which the related expense is incurred.

Vendor advertising allowances recorded as a reduction of advertising expense totaled $2.1 million and $1.9 million for the fiscal quarters ended December 25, 2021 and December

26, 2020, respectively.

Overall, v endor allowances decreased significantly at the onset of the COVID-19 pandemic as vendors reduced support for promotional activities.

Vendor promotional support subsequently increased, but has not reached pre-pandemic levels.

Vendor allowances applied as a reduction of merchandise costs totaled $26.2 million and $28.9 million for the fiscal quarters ended March 26, 2022 and March 27, 2021, respectively.

For the six-month periods ended March 26, 2022 and March 27, 2021, vendor allowances applied as a reduction of merchandise costs totaled $58 million and $58.6 million, respectively.

Vendor advertising allowances that represent a reimbursement of specifically identifiable incremental

costs of advertising the vendor’s specific products are recorded as a reduction to the related expense in the period in which the related expense is incurred.

Vendor advertising allowances recorded as a reduction of advertising expense totaled $1.7 million and $2.1 million for the fiscal quarters ended March 26, 2022 and March 27, 2021, respectively.

For the six-month periods ended March 26, 2022 and March 27, 2021, vendor advertising allowances recorded as a reduction of advertising expense totaled $3.7 million and $4.0 million, respectively.

Overall, v endor allowances have been lower since the COVID-19 pandemic began.

If vendor advertising allowances were substantially reduced or eliminated, the Company would likely consider other methods of advertising, as well as the volume and frequency of the Company’s product advertising, which could increase or decrease the Company’s expenditures.

Similarly, the Company is not able to assess the impact of vendor advertising allowances on creating additional revenue, as such allowances do not directly generate revenue for the Company’s stores.

Additionally, the Company is not able to assess the impact of vendor advertising allowances on the creation of additional revenue, as such allowances do not directly generate revenue for the Company’s stores.

Results of Operations

Ingles operates on a 52 or 53-week fiscal year ending on the last Saturday in September.

The Condensed Consolidated Statements of Income for the three-month periods ended December 25, 2021 and December 26, 2020 both include 13 weeks of operations.

There are 13 and 26 weeks of operations included in the Unaudited Condensed Consolidated Statements of Income for the three- and six-month periods ended March 26, 2022 and March 27, 2021, respectively.

Comparable store sales are defined as sales by retail stores in operation for five full fiscal quarters.

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A major remodel entails substantial remodeling of an existing store and includes additional retail square footage.

For the three-month period ended December 25, 2021, comparable store sales included 196 stores.

For the three-month period ended December 26, 2020, comparable store sales included 197 stores.

For the three- and six-month periods ended March 26, 2022, comparable store sales included 196 stores.

For the three- and six-month periods ended March 27, 2021, comparable store sales included 197 stores.

The following table sets forth, for the periods indicated, selected financial information as a percentage of net sales.

For information regarding the various segments of the business, see Note K “Segment Information” to the Condensed Consolidated Financial Statements.

For information regarding the various segments of the business, see Note I “Segment Information” to the Condensed Consolidated Financial Statements.

Three Months Ended

Six Months Ended

Operating and administrative expenses

Gain from sale or disposal of assets

Income from operations

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Income tax expense

Three Months Ended December 25, 2021 Compared to the Three Months Ended December 26, 2020

Net income for the first quarter of fiscal 2022 totaled $66.2 million, compared with net income of $53.8 million earned for the first quarter of fiscal 2021.

At the beginning of the COVID-19 pandemic in March 2020, there were widespread stay-at-home measures, as well as the closing of most schools and restaurants.

While such orders and mass closures have lessened, the emergence of the Delta and Omicron COVID-19 variants resulted in the return, to some extent of these type of measures, which were still in place throughout the three months ended December 25, 2021.

As a result, retail grocery sales have benefited and continued to increase almost two years into the pandemic.

Corresponding operating expenses did not increase as much as sales, resulting in higher pre-tax income.

Net sales increased by $201.1 million, or 16.9%, to $1.39 billion for the three months ended December 25, 2021 compared with $1.19 billion for the three months ended December 26, 2020.

Comparing the first quarter of fiscal 2022 with the first quarter of fiscal 2021, gasoline sales dollars and gallons sold were higher due to increased holiday travel and a substantial increase in market prices for fuel.

Three Months Ended March 26, 2022 Compared to the Three Months Ended March 27, 2021

Net income for the second quarter of fiscal 2022 totaled $68.6 million, compared with net income of $52.2 million for the second quarter of fiscal 2021.While the Company has incurred significant inventory cost increases and volatility, expenses did not increase as much as sales, resulting in higher pre-tax income.

Net sales increased by $193.0 million, or 16.3%, to $1.38 billion for the three months ended March 26, 2022 compared with $1.18 billion for the three months ended March 27, 2021.

Comparing the second quarter of fiscal 2022 with the second quarter of fiscal 2021, gasoline sales dollars and gallons sold were higher due to increased travel and an increase in market prices for fuel.

Excluding gasoline sales, total grocery comparable store sales increased 10.1% over the comparative fiscal quarter.

Comparing the first quarters of fiscal years 2022 and 2021 (and excluding gasoline), the number of customer transactions increased 7.3% and the average transaction size increased 3.4%.

As noted above, the COVID-19 pandemic has resulted in more meals consumed at home due in part to school closures and customers limiting their dining out.

Overall, food and gasoline inflation has also impacted the dollar amount of sales.

Ingles operated 198 stores at December 25, 2021 and 197 stores at December 26, 2020.

Retail square feet totaled approximately 11.3 million square feet at December 25, 2021 and 11.3 million square feet at December 26, 2020.

During the twelve months ended December 25, 2021, the Company opened two new stores and closed one store.

Comparing the second quarters of fiscal years 2022 and 2021 (and excluding gasoline), the number of customer transactions increased 5.3% and the average transaction size increased 5.0%.

Ingles operated 198 stores at both March 26, 2022 and March 27, 2021.

Retail square feet totaled approximately 11.3 million square feet at both March 26, 2022 and at March 27, 2021.

During the twelve months ended March 26, 2022, the Company opened one store and closed one store.

Sales by product category (in thousands) were as follows:

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The perishables category includes meat, produce, deli and bakery.

Changes in retail grocery sales for the quarter ended December 25, 2021 are summarized as follows (in thousands):

Total retail sales for the three months ended December 26, 2020

Changes in retail grocery sales for the quarter ended March 26, 2022 are summarized as follows (in thousands):

Total retail sales for the three months ended March 27, 2021

Comparable store sales increase (including gasoline)

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Impact of stores closed in fiscal 2021

Total retail sales for the three months ended December 25, 2021

Total retail sales for the three months ended March 26, 2022

Gross Profit.

Gross profit for the three-month period ended December 25, 2021 totaled $350.5 million, an increase of $36.3 million, or 11.6%, compared with gross profit of $314.2 million for the three-month period ended December 26, 2020.

Gross profit as a percentage of sales was 25.2% and 26.4% for the three months ended December 25, 2021 and December 26, 2020, respectively.

The gross margin for gasoline was lower during the current year quarter due to a sharply higher per gallon cost and sales price.

Retail segment gross profit, excluding gasoline increased 18 basis points for the quarter ended December 25, 2021, as compared with the quarter ended December 26, 2020.

Gross profit for the three-month period ended March 26, 2022 totaled $348.6 million, an increase of $38.1 million, or 12.3%, compared with gross profit of $310.5 million for the three-month period ended March 27, 2021.

Gross profit as a percentage of sales was 25.3% and 26.2% for the three months ended March 26, 2022 and March 27, 2021, respectively.

Operating and Administrative Expenses.

Operating and administrative expenses increased $21.9 million, or 9.2%, to $260.1 million for the three months ended December 25, 2021, from $238.2 million for the three months ended December 26, 2020.

As a percentage of sales, operating and administrative expenses were 18.7% and 20.0% for the December 2021 and December 2020 quarters, respectively.

Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were 21.5% of sales for the first fiscal quarter of 2022 compared with 21.9% for the first fiscal quarter of 2021.

The fiscal 2022 first quarter expense percentages are lower due to additional pandemic-related sales during the first fiscal quarter of 2022.

Operating and administrative expenses increased $17.8 million, or 7.6%, to $254.7 million for the three months ended March 26, 2022, from $236.9 million for the three months ended March 27, 2021.

As a percentage of sales, operating and administrative expenses were 18.5% and 20.0% for the March 2022 and March 2021 quarters, respectively.

Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were 21.5% of sales for the second fiscal quarter of 2022 compared with 22.3% for the second fiscal quarter of 2021.

A breakdown of the major changes in operating and administrative expenses is as follows:

Salaries and wages

Store supplies

Depreciation and amortization

Professional fees

Salaries and wages increased in dollars due to additional labor hours required for the increased sales volume, including extra labor needed in response to the COVID-19 pandemic .

Store supplies increased as a result of increased sales and market costs of certain supplies.

The COVID-19 pandemic has resulted in higher usage of cleaning and packaging products to maintain product safety and the safety of our employees and customers.

Insurance expense increased due to increased claims under the Company’s self-insurance programs.

Bank charges increased due to increased sales and a greater portion of sales settled with credit/debit cards instead of cash or check.

Salaries and wages increased in dollars due to higher sales volume requiring additional hours, as well as increased wages due to labor market competition.

Depreciation expense increased due to equipment purchased for store improvements, technology improvements and the distribution network.

Bank charges increased as a result of increased sales and higher card usage compared with cash or checks.

Professional fees increased in conjunction with improvements to the Company’s information technology platforms.

Other Income.

Other income totaled $1.6 million for the three months ended December 25, 2021 compared with $0.7 million for the three months ended December 26, 2020.

The increase is attributable to higher sales of waste paper and other recyclables.

Gain from Sale or Disposal of Assets.

Gain from the sale or disposal of assets totaled $1.3 million during the three months ended March 26, 2022, primarily from the sale of rolling stock.

During the quarter ended March 27, 2021, the gain from the sale or disposal of assets totaled $0.7 million.

Interest Expense.

Interest expense totaled $5.4 million for the three-month period ended December 25, 2021 compared with $6.4 million for the three-month period ended December 26, 2020.

Total debt at December 25, 2021 was $586.1 million compared with $587.9 million at December 26, 2020.

Over the past twelve months, the Company has reduced or refinanced higher rate debt.

Interest expense totaled $5.4 million for the three-month period ended March 26, 2022 compared with $6.2 million for the three-month period ended March 27, 2021.

Total debt at March 2022 was $578.5 million compared with $647.8 million at March 2021.

Over the past twelve months, the Company has reduced or refinanced higher rate debt to lower rates.

Income Taxes.

Income tax expense totaled $20.4 million for the three months ended December 25, 2021, an effective tax rate of 23.6% of pretax income.

Income tax expense totaled $16.9 million for the three months ended December 26, 2020, an effective tax rate of 23.9% of pretax income.

Net income totaled $66.2 million for the three-month period ended December 25, 2021 compared with $53.8 million for the three-month period ended December 26, 2020.

Basic and diluted earnings per share for Class A Common Stock were $3.57 and $3.48, respectively, for the December 2021 quarter, compared to $2.73 and $2.66, respectively, for the December 2020 quarter.

Basic and diluted earnings per share for Class B Common Stock were each $3.24 for the December 2021 quarter compared with $2.48 for the December 2020 quarter.

Income tax expense totaled $22.4 million for the three months ended March 26, 2022, an effective tax rate of 24.6% of pretax income.

Income tax expense totaled $16.6 million for the three months ended March 27, 2021, an effective tax rate of 24.1% of pretax income.

Net income totaled $68.6 million for the three-month period ended March 26, 2022 compared with $52.2 million for the three-month period ended March 27, 2021.

Basic and diluted earnings per share for Class A Common Stock were $3.70 and $3.61, respectively, for the March 2022 quarter, compared to $2.65 and $2.58, respectively, for the March 2021 quarter.

Basic and diluted earnings per share for Class B Common Stock were each $3.36 for the March 2022 quarter compared with $2.41 for the March 2021 quarter.

Six Months Ended March 26, 2022 Compared to the Six Months Ended March 27, 2021

Net income for the first half of fiscal 2022 totaled $134.8 million, compared with net income of $106.0 million earned for the first half of fiscal 2021.

Retail grocery sales increased due to continued consumer trends seen since the beginning of the COVID 19 pandemic as well as the effects of inflation.

Corresponding operating expenses did not increase as much, resulting in higher pre-tax income.

Net sales increased by $393.7 million, or 16.6%, to $2.77 billion for the six months ended March 26, 2022 compared with $2.37 billion for the six months ended March 27, 2021.

Comparing the first half of fiscal 2022 with the first half of fiscal 2021, gasoline sales dollars and gallons sold were higher.

Excluding gasoline sales, total grocery comparable store sales increased 10.2% over the comparative six-month period.

Comparing the first halves of fiscal years 2022 and 2021 (and excluding gasoline), the number of customer transactions increased 6.3% and the average transaction size increased 4.2%.

Sales by product category (in thousands) are as follows:

Six Months Ended

Total retail grocery

Changes in retail grocery sales for the quarter ended March 26, 2022 are summarized as follows (in thousands):

Total retail sales for the six months ended March 27, 2021

Comparable store sales increase (including gasoline)

Impact of stores opened in fiscal 2021

Impact of stores closed in fiscal 2021

Total retail sales for the six months ended March 26, 2022

The grocery category includes grocery, dairy, and frozen foods.

The non-foods category includes alcoholic beverages, tobacco, pharmacy, and health/beauty/cosmetic products.

The perishables category includes meat, produce, deli and bakery.

Gross Profit.

Gross profit for the six-month period ended March 26, 2022 totaled $699.1 million, an increase of $74.4 million, or 11.9%, compared with gross profit of $624.7 million for the six-month period ended March 27, 2021.

Gross profit as a percentage of sales was 25.3% and 26.3% for the six months ended March 26, 2022 and March 27, 2021, respectively.

Inflation and supply chain pressures have increased the cost of goods sold.

Operating and Administrative Expenses.

Operating and administrative expenses increased $39.8 million, or 8.4%, to $514.8 million for the six months ended March 26, 2022, from $475.0 million for the six months ended March 27, 2021.

As a percentage of sales, operating and administrative expenses were 18.6% and 20.0% for the March 2022 and March 2021 six-month periods, respectively.

Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were 21.5% of sales for the first six months of 2022 compared with 22.1% for the first six months of 2021.

The fiscal 2022 first half expense percentages are lower due to additional pandemic-related sales during the first half of 2022.

A breakdown of the major changes in operating and administrative expenses is as follows:

Salaries and wages

Depreciation and amortization

Professional fees

Salaries and wages increased in dollars due to additional labor hours required for the increased sales volume and continued labor market pressures.

Depreciation expense increased due to equipment purchased for store improvements, technology and the distribution network.

Bank charges increased as a result of increased sales and higher card usage compared with cash or checks.

Professional fees increased in conjunction with improvements to the Company’s information technology platforms.

Gain from Sale or Disposal of Assets.

Gain from the sale or disposal of assets totaled $1.2 million during the six months ended March 26, 2022.

During the six-months ended March 27, 2021, the gain from the sale or disposal of assets totaled $1.1 million.

Interest Expense.

Interest expense totaled $10.8 million for the six-month period ended March 26, 2022 compared with $12.6 million for the six -month period ended March 27, 2021.

Total debt at March 2022 was $578.5 million compared with $647.8 million at March 2021.

Over the past twelve months, the Company has reduced or refinanced higher rate debt to lower rates.

Income Taxes.

Income tax expense totaled $42.8 million for the six months ended March 26, 2022, an effective tax rate of 24.1% of pretax income.

Income tax expense totaled $33.5 million for the six months ended March 27, 2021, an effective tax rate of 24.0% of pretax income.

Net income totaled $134.8 million for the six-month period ended March 26, 2022 compared with $106.0 million for the six-month period ended March 27, 2021.

Basic and diluted earnings per share for Class A Common Stock were $7.26 and $7.10, respectively, for the six months ended March 26, 2022, compared to $5.38 and $5.24, respectively, for the six months ended March 27, 2021.

Basic and diluted earnings per share for Class B Common Stock were each $6.60 for the six-months ended March 26, 2022 compared with $4.89 for the six months ended March 27, 2021.

Liquidity and Capital Resources

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The Company’s modernization program includes the opening of new stores, the completion of major remodels and expansion of selected existing stores, the relocation of selected existing stores to larger, more convenient locations and the completion of minor remodeling of its remaining existing stores.

Capital expenditures totaled $21.3 million for the three-month period ended December 25, 2021.

These capital expenditures focused on construction of stores scheduled to open later in fiscal 2022, site acquisition, and smaller-scale remodeling projects in a number of the Company’s stores.

Capital expenditures totaled $34.1 million for the six-month period ended March 26, 2022.

These capital expenditures focused on construction on stores opened or scheduled to open in fiscal 2022, site acquisition, and smaller-scale remodeling projects in a number of the Company’s stores.

Capital expenditures also included the costs of upgrading and replacing store equipment, technology investments, rolling stock, and capital expenditures related to the Company’s milk processing plant.

Capital expenditures were lower this quarter due to both increased costs and reduced availability of labor and materials.

Capital expenditures were lower this quarter as compared to the same quarter in 2021 due to both increased costs and reduced availability of labor and materials.

The Company expects to increase capital expenditures when labor and material costs normalize.

The Company’s capital expenditure plans for fiscal 2022 currently include investments of approximately $100 to $120 million.

At this time the Company does not anticipate that the COVID-19 pandemic will have an adverse impact on its long-term capital expenditure plans.

Ingles’ capital expenditure plans for fiscal 2022 currently include investments of approximately $100 to $120 million.

The Company currently plans to dedicate the majority of its fiscal 2022 capital expenditures to continued improvement of its store base and also include investments in stores expected to open in fiscal 2022, as well as technology improvements, upgrading and replacing existing store equipment and warehouse and transportation equipment and improvements to the Company’s milk processing plant.

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Among other things, planned expenditures for any given future fiscal year will be affected by the availability of financing, which can affect both the number of projects pursued at any given time and the cost of those projects.

The number of projects may also fluctuate due to the varying costs of the types of projects pursued including new stores and major remodel/expansions.

The number of projects may also fluctuate due to the varying costs of the types of projects pursued including new stores and

major remodel/expansions.

The Company makes decisions on the allocation of capital expenditure dollars based on many factors including the competitive environment, other Company capital initiatives and its financial condition.

The Company does not generally enter into commitments for capital expenditures other than on a store-by-store basis at the time it begins construction on a new store or begins a major or minor remodeling project.

The Company had no outstanding construction commitments at December 25, 2021.

The Company generated $95.0 million net cash from operations in the December 2021 three-month period compared with $57.8 million during the December 2020 three-month period.

The increase is primarily attributable to higher net income as a result of increased sales due to the COVID-19 pandemic .

Cash used by investing activities for the three-month periods ended December 25, 2021 and December 26, 2020 totaled $131.1 million and $33.6 million, respectively.

Excess cash of approximately $110 million has been invested in short-term financial instruments.

Cash used by financing activities totaled $6.5 million for the three-month period ended December 25, 2021, compared with $21.0 million for the three-month period ended December 26, 2020.

The decrease is primarily related to the repayment of borrowings under the Line (as defined below) during the quarter ended December 26, 2020.

Outstanding construction commitments totaled $15.6 million at March 26, 2022.

The Company generated $155.5 million net cash from operations in the March 2022 six-month period compared with $114.7 million during the March 2021 six-month period.

Cash from operations increased by $40.1 million due to higher net income and less working capital needs during the March 2022 six-month period compared with the March 2021 six-month period.

Cash used by investing activities for the six-month periods ended March 26, 2022 and March 27, 2021 totaled $142.6 million and $68.1 million, respectively, consisting primarily of capital expenditures offset by proceeds from property and equipment sales.

Lower current year capital expenditures and increased purchases of short term investments as compared to the prior year period account for the difference in investing activities between the two six-month periods.

Cash used by financing activities totaled $17.6 million for the six-month period ended March 26, 2022, compared with $44.6 million for the six-month period ended March 27, 2021.

The decrease is primarily related to the repurchase of common stock during the prior fiscal year, part of which was funded with borrowings under the Line.

In June 2021, the Company issued $350.0 million aggregate principal amount of senior notes due 2031 (the “Notes”).

The Notes bear an interest rate of 4.00% per annum and were issued at par.

Upon issuance of the Notes, the Company issued an irrevocable notice to redeem the remaining $295.0 million principal amount of the Company’s 5.75% senior notes due 2023 which the Company redeemed at par value on July 16, 2021.

Upon issuance of the Notes, the Company issued an irrevocable notice to redeem the remaining $295.0 million aggregate principle amount of the Company’s 5.75% senior notes due 2023, which the Company redeemed at par value on July 16, 2021.

The Company has a $150.0 million line of credit (the “Line”) that matures in June 2026.

The Line provides the Company with various interest rate options based on the prime rate, the Federal Funds Rate, or LIBOR.

The Line allows the Company to issue up to $10.0 million in letters of credit, of which none were issued at December 25, 2021.

The Line allows the Company to issue up to $10.0 million in letters of credit, of which no letters of credit were issued at March 26, 2022.

The Company is not required to maintain compensating balances in connection with the Line.

At December 25, 2021, the Company had no borrowings outstanding under the Line.

At March 26, 2022, the Company had no borrowings outstanding under the Line.

In December 2010, the Company completed the funding of $99.7 million of Bonds (the “Bonds”) for the construction of new warehouse and distribution space adjacent to its existing space in Buncombe County, North Carolina (the “Project”).

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Mandatory redemption of the Bonds by the Company in the annual amount of $4.5 million began on January 1, 2014.

The outstanding balance of the Bonds is $63.5 million as of December 25, 2021.

The outstanding balance of the Bonds is $59.0 million as of March 26, 2022.

The Company may redeem the Bonds without penalty or premium at any time prior to December 17, 2029.

The Covenant Agreement was amended during the three months ended December 25, 2021, to extend the holding period and reduce the interest rate on the Bonds.

In September 2017, the Company refinanced approximately $60 million secured borrowing obligations with a LIBOR-based amortizing floating rate loan secured by real estate maturing in October 2027.

The Company has an interest rate swap agreement for a current notional amount of $33.5 million at a fixed rate of 3.92%.

Under this agreement, the Company pays monthly the fixed rate of 3.92% and receives the one-month LIBOR plus 1.65%.

The interest rate swap effectively hedges floating rate debt in the same amount as the current notional amount of the interest rate swap.

The interest rate swap effectively hedges floating rate debt in the same amount as the current notional amount of the interest swap.

Both the floating rate debt and the interest rate swap have monthly principal amortization of $0.5 million and mature October 1, 2027.

In December 2019, the Company closed a $155 million LIBOR-based amortizing floating rate loan secured by real estate maturing in January 2030.

The Company has an interest rate swap agreement for a current notional amount of $136.3 million at a fixed rate of 2.95%.

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Included among the triggering factors permitting the termination or withdrawal of the Line to the Company are certain events of default, including both monetary and non-monetary defaults, the initiation of bankruptcy or insolvency proceedings, and the failure of the Company to meet certain financial covenants designated in its respective loan documents.

As of December 25, 2021, the Company was in compliance with these covenants.

Under the most restrictive of these covenants, the Company would be able to incur approximately $2.1 billion of additional borrowings (including borrowings under the Line) as of December 25, 2021.

As of March 26, 2022, the Company was in compliance with these covenants.

Under the most restrictive of these covenants, the Company would be able to incur approximately $2.3 billion of additional borrowings (including borrowings under the Line) as of March 26, 2022.

The Company’s principal sources of liquidity are expected to be cash flow from operations, borrowings under the Line and long-term debt financing.

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These factors may include, among others, increased competition, changing regional and national economic conditions, adverse climatic conditions affecting food production and delivery, changing demographics, and the impact of the COVID-19 pandemic, as well as the additional factors discussed below under “Forward Looking Statements.” It is also possible, for such reasons, that the results of operations from the new, expanded, remodeled and/or replacement stores will not meet or exceed the results of operations from existing stores that are described in this report.

Contractual Obligations and Commercial Commitments

There have been no other material changes in contractual obligations and commercial commitments subsequent to September 25, 2021 other than as described elsewhere in this Form 10-Q.

Off Balance Sheet Arrangements

The Company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

Quarterly Cash Dividends

12 unchanged sentences

Impact of Inflation

As the economy recovers from the initial impact of the COVID-19 pandemic, inflation has recently reached levels not experienced in decades.

Food and energy costs have increased, reflecting a tight labor market and supply chain/transportation disruptions.

As the economy recovers from the initial impact of the COVID-19 pandemic, inflation has reached levels not experienced in decades.

Food and energy costs have increased, reflecting a tight labor market and supply chain and transportation disruptions.

The following table from the United States Bureau of Labor Statistics lists annualized changes in the Consumer Price Index that could have an effect on the Company’s operations.

One of the Company’s significant costs is labor, which increases with general inflation.

One of the Company’s significant costs is labor, which increases with general increases in inflation.

Inflation or deflation in energy costs affects the Company’s gasoline sales, distribution expenses and plastic supply costs.

During the past twelve months, inflation has reached its highest level in a number of years, impacting food costs, transportation costs, and labor costs.

Twelve Months Ended

December 2021

Forward Looking Statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.

This Quarterly Report contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.

The words “expect”, “anticipate”, “intend”, “plan”, “likely”, “goal”, “believe”, “seek”, “will”, “may”, “would”, “should” and similar expressions are intended to identify forward-looking statements.

7 unchanged sentences

the maturation of new and expanded stores;

the Company’s ability to reduce costs and achieve

improvements in operating results;

the Company’s ability to reduce costs and achieve improvements in operating results;

the availability and terms of financing;

8 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis