What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-02-02 compared with 2022-08-04 · 98 added, 162 removed, 111 unchanged (70% of the section changed)

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Ingles, a leading supermarket chain in the Southeast, operates 198 supermarkets in North Carolina (75), Georgia (65), South Carolina (35), Tennessee (21), Virginia (1) and Alabama (1).

The Company locates its supermarkets primarily in suburban areas, small towns and rural communities.

Ingles supermarkets offer customers a wide variety of nationally advertised food products, including grocery, meat and dairy products, produce, frozen foods and other perishables and non-food products.

Non-food products include fuel centers, pharmacies, health/beauty/cosmetic products and general merchandise, as well as quality private label items.

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 June 25, 2022, the Company operated 111 in-store pharmacies and 107 fuel centers.

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

Coronavirus (COVID-19) Pandemic Impact

The COVID-19 pandemic which began in March 2020 and has continued through the nine months ended June 25, 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.

The COVID-19 pandemic which began in March 2020 and has continued through the three months ended December 24, 2022, has impacted supermarket operations.

At the onset of the COVID-19 pandemic, the Company implemented several enhanced cleaning and social distancing protocols designed to keep our customers and our associates safe and has continued to monitor and update its protocols as the pandemic has evolved.

Since March 2020, the Company’s stores have experienced increased customer traffic and 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 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.

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.

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

Critical Accounting Policies

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however, liability coverage is maintained.

At June 25, 2022 the Company’s self-insurance reserves totaled $31.0 million.

At December 24, 2022 the Company’s self-insurance reserves totaled $31.1 million.

This amount is inclusive of $4.1 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 nine-month period ended June 25, 2022.

There were no asset impairments during the three-month period ended December 24, 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 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.

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.

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 $25.4 million and $30.0 million for the fiscal quarters ended June 25, 2022 and June 26, 2021, respectively.

For the nine-month periods ended June 25, 2022 and June 26, 2021, vendor allowances applied as a reduction of merchandise costs totaled $83.5 million and $88.7 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 $1.6 million and $2.0 million for the fiscal quarters ended June 25, 2022 and June 26, 2021, respectively.

For the nine-month periods ended June 25, 2022 and June 26, 2021, vendor advertising allowances recorded as a reduction of advertising expense totaled $5.3 million and $6.0 million, respectively.

Vendor allowances applied as a reduction of merchandise costs totaled $34.4 million and $31.9 million for the fiscal quarters ended December 24, 2022 and December 25, 2021, 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 $2.0 million and $2.1 million for the fiscal quarters ended December 24, 2022 and December 25, 2021, 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.

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.

Additionally, 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.

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.

Results of Operations

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

There are 13 and 39 weeks of operations included in the Unaudited Condensed Consolidated Statements of Income for the three- and nine-month periods ended June 25, 2022 and June 26, 2021, respectively.

The Condensed Consolidated Statements of Income for the three-month periods ended December 24, 2022 and December 25, 2021 both include 13 weeks of operations.

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

Sales from replacement stores, major remodels and the addition of fuel stations to existing stores are included in the comparable store sales calculation from the date of replacement, completion of the remodel or date of addition of fuel station, respectively.

A replacement store is a newly opened store that replaces an existing nearby store that is closed.

A major remodel entails substantial

remodeling of an existing store and includes additional retail square footage.

For both the three- and nine-month periods ended June 25, 2022 and June 26, 2021, comparable store sales included 196 and 197 stores, respectively.

Sales from replacement stores, major remodels and the addition of fuel stations to existing stores are included in the comparable store sales calculation from the date thereof.

A replacement store is a newly-opened store that replaces an existing nearby store that has closed.

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

For the three-month period ended December 24, 2022, comparable store sales included 197 stores.

For the three-month period ended December 25, 2021, comparable store sales included 196 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 I “Segment Information” to the Condensed Consolidated Financial Statements.

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

Three Months Ended

Nine Months Ended

Operating and administrative expenses

Gain from sale or disposal of assets

Income from operations

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Interest expense

Loss on early extinguishment of debt

Income tax expense

Three Months Ended June 25, 2022 Compared to the Three Months Ended June 26, 2021

Net income for the third quarter of fiscal 2022 totaled $67.8 million, compared with net income of $72.0 million earned for the third quarter of fiscal 2021.

Net sales increased by $180.7 million, or 14.2%, to $1.46 billion for the three months ended June 25, 2022 compared with $1.28 billion for the three months ended June 26, 2021.

Comparing the third quarter of fiscal 2022 with the third 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 5.7% over the comparative fiscal quarter.

Comparing the third quarters of fiscal years 2022 and 2021 (and excluding gasoline), the number of customer transactions increased 2.3% and the average transaction size increased 3.4%.

Ingles operated 198 stores at June 25, 2022 and June 26, 2021.

Retail square feet totaled approximately 11.3 million square feet at June 25, 2022 and at June 26, 2021.

During the twelve months ended June 25, 2022, the Company opened one store and closed one store.

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

Three Months Ended

Total retail grocery

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.

Changes in retail grocery sales for the quarter ended June 25, 2022 are summarized as follows (in thousands):

Total retail sales for the three months ended June 26, 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 three months ended June 25, 2022

Gross Profit.

Gross profit for the three-month period ended June 25, 2022 totaled $351.9 million, an increase of $14.4 million, or 4.3%, compared with gross profit of $337.5 million for the three-month period ended June 26, 2021.

Gross profit as a percentage of sales was 24.1% and 26.4% for the three months ended June 25, 2022 and June 26, 2021, respectively.

Retail grocery gross margin,

excluding gasoline, was 44 basis points lower for the three months ended June 25, 2022 compared with the three months ended June 26, 2021.

Operating and Administrative Expenses.

Operating and administrative expenses increased $17.9 million, or 7.5%, to $257.3 million for the three months ended June 25, 2022, from $239.4 million for the three months ended June 26, 2021.

As a percentage of sales, operating and administrative expenses were 17.7% and 18.7% for the June 2022 and June 2021 quarters, respectively.

Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were 21.4% of sales for the third fiscal quarter of 2022 compared with 21.3% for the third fiscal quarter of 2021.

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

Salaries and wages

Repairs and maintenance

Professional fees

Salaries and wages increased in dollars due to additional labor hours required for increased sales volume as well as due to overall increases in wages due to the competitive labor market.

Repairs and maintenance expense increased due to sales volume, fuel surcharges and rising costs in refrigerant.

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

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

Gain from Sale or Disposal of Assets.

During the quarter ended June 25, 2022, the gain from the sale or disposal of assets was insignificant.

Gain from the sale or disposal of assets totaled $2.5 million during the three months ended June 26, 2021, primarily from the sale of a former store property

Interest Expense.

Interest expense totaled $5.3 million for the three-month period ended June 25, 2022 compared with $5.5 million for the three-month period ended June 26, 2021.

Total debt at June 2022 was $575.2 million compared with $901.2 million at June 2021.

Excluding the $350.0 million aggregate principle of the Notes due in 2031 issued in June 2021, debt would total $551.2 million at June 26, 2021.

Income Taxes.

Income tax expense totaled $22.7 million for the three months ended June 25, 2022 and June 26,2021, with an effective tax rate of 25.1% and 24.0% of pretax income, respectively.

Net income totaled $67.8 million for the three-month period ended June 25, 2022 compared with $72.0 million for the three-month period ended June 26, 2021.

Basic and diluted earnings per share for Class A Common Stock were $3.65 and $3.57, respectively, for the June 2022 quarter, compared to $3.88 and $3.79, respectively, for the June 2021 quarter.

Basic and diluted earnings per share for Class B Common Stock were each $3.32 for the June 2022 quarter compared with $3.52 for the June 2021 quarter.

Nine Months Ended June 25, 2022 Compared to the Nine Months Ended June 26, 2021

Net income for the nine months ended June 25, 2022 totaled $202.6 million, compared with net income of $178.0 million earned for the first nine months of fiscal 2021.

Three Months Ended December 24, 2022 Compared to the Three Months Ended December 25, 2021

Net income for the first quarter of fiscal 2023 totaled $69.4 million, compared with net income of $66.2 million for the first quarter of fiscal 2022.

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.

Net sales increased by $574.4 million, or 15.7%, to $4.23 billion for the nine months ended June 25, 2022 compared with $3.65 billion for the nine months ended June 26, 2021.

Comparing the first nine months of fiscal 2022 with the first nine months of fiscal 2021, gasoline sales dollars and gallons sold were higher as market prices increased and travel increased.

Excluding gasoline sales, total grocery comparable store sales increased 8.6% over the comparative nine-month period.

Comparing the first nine months of fiscal years 2022 and 2021 (and excluding gasoline), the number of customer transactions increased 1.5% and the average transaction size increased 7.0%.

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

Nine Months Ended

Total retail grocery

Changes in retail grocery sales for the nine months ended June 25, 2022 are summarized as follows (in thousands):

Total retail sales for the nine months ended June 26, 2021

Comparable store sales increase (including gasoline)

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

Net sales increased by $101.8 million, or 7.3%, to $1.5 billion for the three months ended December 24, 2022 compared with $1.4 billion for the three months ended December 25, 2021.

Excluding fuel sales, total grocery comparable store sales increased 7.3% over the comparative fiscal quarter.

Ingles operated 198 stores at both December 24, 2022 and December 25, 2021.

Inflation in the prices of food and fuel has also positively impacted the dollar amount of sales.

Changes in retail grocery sales for the quarter ended December 24, 2022 are summarized as follows (in thousands):

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

Comparable store sales increase (including fuel)

Impact of stores opened in fiscal 2021

Impact of stores closed in fiscal 2021

Total retail sales for the nine months ended June 25, 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.

Total retail sales for the three months ended December 24, 2022

Gross Profit.

Gross profit for the nine-month period ended June 25, 2022 totaled $1.1 billion, an increase of $88.8 million, or 9.2%, compared with gross profit of $962.2 million for the nine-month period ended June 26, 2021.

Gross profit as a percentage of sales was 24.9% and 26.3% for the nine months ended June 25, 2022 and June 26, 2021, respectively.

Retail grocery gross margin, excluding gasoline, was one basis point higher for the nine months ended June 25, 2022 compared with the nine months ended June 26, 2021.

Gross profit for the three-month period ended December 24, 2022 totaled $371.2 million, an increase of $20.7 million, or 5.9%, compared with gross profit of $350.5 million for the three-month period ended December 25, 2021.

Gross profit as a percentage of sales was 24.9% and 25.2% for the three months ended December 24, 2022 and December 25, 2021, respectively.

The decrease in gross profit as a percentage of sales resulted primarily from inflation and raw material shortages, which have increased the cost of products.

Retail segment gross profit, excluding fuel decreased 84 basis points for the quarter ended December 24, 2022, as compared with the quarter ended December 25, 2021.

Operating and Administrative Expenses.

Operating and administrative expenses increased $57.7 million, or 8.1%, to $772.2 million for the nine months ended June 25, 2022, from $714.5 million for the nine months ended June 26, 2021.

As a percentage of sales, operating and administrative expenses were 18.3% and 19.6% for the June 2022 and June 2021 nine-month periods, respectively.

Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were 21.4% of sales for the first nine months of 2022 compared with 21.8% for the first nine months of 2021.

Operating and administrative expenses increased $16.1 million, or 6.2%, to $276.2 million for the three months ended December 24, 2022, as compared to $260.1 million for the three months ended December 25, 2021.

As a percentage of sales, operating and administrative expenses were 18.5% and 18.7% for the December 2022 and December 2021 quarters, respectively.

Excluding fuel sales and associated fuel operating expenses (primarily payroll), operating expenses were 21.0% of sales for the first fiscal quarter of fiscal 2023 compared with 21.5% for the first fiscal quarter 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, including extra labor needed in response to the COVID-19 pandemic .

Depreciation expense increased due to equipment purchased for store improvements, information 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 nine months ended June 25, 2022, primarily from the rolling stock transactions.

During the nine months ended June 26, 2021, the gain from the sale or disposal of assets totaled $3.6 million primarily from the sale of a former store property.

Repairs and maintenance

Store supplies

Salaries and wages increased in dollars due to increased competition in the labor market in the Company’s market area.

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

Repairs and maintenance increased due to wear and tear of equipment due to increased sales volume, increased costs of parts and refrigeration.

Store supplies, which include customer packaging containers, increased as a result of increased sales and market costs of certain supplies and supply chain issues for certain raw materials.

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

Other Income.

Other income totaled $1.4 million for the three months ended December 24, 2022 compared with $1.6 million for the three months ended December 25, 2021.

Interest Expense.

Interest expense totaled $16.1 million for the nine-month period ended June 25, 2022 compared with $18.1 million for the nine-month period ended June 26, 2021.

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

Loss on Early Extinguishment of Debt.

During the nine-month June 2021 period, the Company wrote off $1.1 million of capitalized loan costs related to the retirement of the 2023 Notes and the Company’s former line of credit .

Interest expense totaled $5.3 million for the three-month period ended December 24, 2022 compared with $5.4 million for the three-month period ended December 25, 2021.

Total debt at December 24, 2022 was $564.5 million compared with $586.1 million at December 25, 2021.

Income Taxes.

Income tax expense totaled $65.5 million for the nine months ended June 25, 2022, an effective tax rate of 24.4% of pretax income.

Income tax expense totaled $56.2 million for the nine months ended June 26, 2021, an effective tax rate of 24.0% of pretax income.

Net income totaled $202.6 million for the nine-month period ended June 25, 2022 compared with $178.0 million for the nine-month period ended June 26, 2021.

Basic and diluted earnings per share for Class A Common Stock were $10.91 and $10.67, respectively, for the nine months ended June 25, 2022, compared to $9.22 and $8.98, respectively, for the nine months ended June 26, 2021.

Basic and diluted earnings per share for Class B Common Stock were each $9.92 for the nine-months ended June 25, 2022 compared with $8.38 for the nine months ended June 26, 2021.

Income tax expense totaled $22.5 million for the three months ended December 24, 2022, reflecting an effective tax rate of 24.5% of pretax income.

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

Net income totaled $69.4 million for the three-month period ended December 24, 2022 compared with $66.2 million for the three-month period ended December 25, 2021.

Basic and diluted earnings per share for Class A Common Stock were $3.73 and $3.65, respectively, for the December 2022 quarter, compared to $3.57 and $3.48, respectively, for the December 2021 quarter.

Basic and diluted earnings per share for Class B Common Stock were each $3.40 for the December 2022 quarter compared with $3.24 for the December 2021 quarter.

Liquidity and Capital Resources

Capital Expenditures

The Company believes that a key to its ability to continue to develop a loyal customer base is providing conveniently located, clean and modern stores which provide customers with good service and an increasingly diverse selection of competitively priced products.

Therefore, the Company has invested and plans to continue to invest significant amounts of capital toward the modernization of its store base.

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 $73.2 million for the nine-month period ended June 25, 2022.

These capital expenditures focused on construction of stores scheduled to open in fiscal 2023, 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.

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

The Company currently plans to dedicate the remainder of its fiscal 2022 capital expenditures to continued improvement of its store base, technology improvements, upgrading and replacing existing store equipment and warehouse and transportation equipment and improvements to the Company’s milk processing plant.

Capital expenditures totaled $59.3 million for the three-month period ended December 24, 2022.

The Company’s capital expenditures include the construction of new stores, the expansion and remodeling of existing stores, the acquisition of sites, new technology, and upgrades of the Company’s transportation fleet and facilities.

The Company’s capital expenditure plans for fiscal 2023 currently include investments of approximately $120 to $140 million.

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

The Company currently plans to dedicate the majority of its fiscal 2023 capital expenditures to continued improvement of its store base and continued investment in one store expected to open in fiscal 2023, as well as technology improvements, upgrading and replacing existing store, warehouse and transportation equipment and improvements to the Company’s milk processing plant.

The Company currently expects that its annual capital expenditures will be in the range of approximately $100 to $160 million going forward in order to maintain a modern store base.

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.

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.

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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.

Outstanding construction commitments totaled $10.9 million at June 25, 2022.

The Company generated $261.6 million net cash from operations in the June 2022 nine-month period compared with $213.9 million during the June 2021 nine-month period.

Net income was higher for the nine-month 2022 period compared with the prior year, and the nine-month 2021 year had higher working capital needs to maintain and build inventory levels back to more normal levels following the beginning of the COVID-19 Pandemic.

Cash used by investing activities for the nine-month periods ended June 25, 2022 and June 26, 2021 totaled $181.8 million and $396.4 million, respectively.

The decrease for the nine-month period ended June 2022 compared to the nine-month period ended June 2021, was primarily related to the $295.0 million of proceeds invested in short-term investments from the Company’s issuance of $350.0 million aggregate principal amount of 4.00% senior notes (the “2031 Notes”) prior to the redemption of the 2023 Notes in July 2021.

The decrease was offset by $110 million purchases of short-term investments in 2022.

Cash used by financing activities totaled $24.1 million for the nine-month period ended June 25, 2022, compared with cash provided by financing activities of $200.1 million for the nine-month period ended June 26, 2021.

The decrease is primarily related to the issuance of the 2031 Notes, offset by the repurchase of common stock and the net repayments of short-term borrowings during the 2021 period.

In June 2021, the Company issued the 2031 Notes.

The Company generated $57.3 million net cash from operations for the December 2022 three-month period compared with $95.0 million for the December 2021 three-month period.

The decrease was primarily attributable to higher working capital needs .

Cash used by investing activities for the three-month periods ended December 24, 2022 and December 25, 2021 totaled $58.2 million and $131.1 million, respectively.

Excess cash of approximately $110 million was invested in short-term financial instruments in the prior year offset by higher capital expenditures through the first quarter of fiscal 2023.

Cash used by financing activities totaled $10.7 million for the three-month period ended December 24, 2022, compared with $6.5 million for the three-month period ended December 25, 2021.

During the quarter ended December 24, 2022, the Company repaid $4.2 million of mortgage debt.

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 2031 Notes, the Company issued an irrevocable notice to redeem the remaining $295.0 million principal amount of the 2023 Notes, 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 June 25, 2022.

The Line allows the Company to issue up to $10.0 million in letters of credit, of which none were issued at December 24, 2022.

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

At June 25, 2022, the Company had no borrowings outstanding under the Line.

At December 24, 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 $59.0 million as of June 25, 2022.

The outstanding balance of the Bonds is $59.0 million as of December 24, 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.

The Covenant Agreement was amended during the three months ended December 25, 2021 to extend the holding period from September 2026 to December 2029 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.

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Both the floating rate debt and the interest rate swap have monthly principal amortization of $0.65 million and mature in fiscal year 2030.

The fair market value of the interest rate swaps is measured quarterly with adjustments recorded in other comprehensive income.

The fair market value of the interest rate swaps are measured quarterly with adjustments recorded in other comprehensive income.

The Company’s long-term debt agreements generally have cross-default provisions which could result in the acceleration of payments due under the Company’s Line, Bonds and Notes indenture in the event of default under any one instrument.

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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 June 25, 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 June 25, 2022.

As of December 24, 2022, the Company was in compliance with these

Under the most restrictive of these covenants, the Company would have been permitted to incur approximately $2.3 billion of additional borrowings (including borrowings under the Line) as of December 24, 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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However, there is no assurance that any such sources of financing will be available to the Company when needed on acceptable terms, or at all.

It is possible that, in the future, the Company’s results of operations and financial condition will be different from that described in this report based on a number of factors.

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.

It is possible that, in the future, the Company’s results of operations and financial condition will be different from that described in this Quarterly Report on Form 10-Q based on a number of factors.

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 ongoing 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 Quarterly Report on Form 10-Q.

Quarterly Cash Dividends

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Further, the Company is prevented from declaring dividends at any time that it is in default under the indenture governing the Notes.

Grocery sales are subject to a slight seasonal variance due to holiday related sales and due to sales in areas where seasonal homes are located.

Grocery sales are subject to a slight seasonal variance due to both holiday related sales and sales in areas where seasonal homes are located.

Sales are traditionally higher in the Company’s first fiscal quarter due to the inclusion of sales related to Thanksgiving and Christmas.

The Company’s second fiscal quarter traditionally has the lowest sales of the year, unless Easter falls in that quarter.

In the third and fourth quarter, sales are affected by the return of customers to seasonal homes in our market area.

The Company’s fluid dairy operations have slight seasonal variation to the extent of its sales into the grocery industry.

The Company’s real estate activities are not subject to seasonal variations.

Unless Easter falls within the quarter, the Company’s second fiscal quarter traditionally has the lowest sales of the year predominantly due to lower occupancy of seasonal homes.

In the third and fourth quarters, sales are usually positively affected by the return of customers to seasonal homes in our market area.

Impact of Inflation

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.

As the economy continues to recover 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.

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 increases in inflation.

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

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

Inflation or deflation in energy costs affects the Company’s fuel 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 2022

Forward Looking Statements

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

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.

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

While these forward-looking statements and the related assumptions are made in good faith and reflect the Company’s current judgment regarding the direction of the Company’s business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested or described by such forward-looking statements.

While these forward-looking statements and the related assumptions are made in good faith and reflect the Company’s current judgment regarding the direction of

the Company’s business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested or described by such forward-looking statements.

Such statements are based upon a number of assumptions and estimates which are inherently subject to significant risks and uncertainties many of which are beyond the Company’s control.

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pricing pressures and other competitive factors;

reduction in per gallon retail gasoline prices;

reduction in per gallon retail fuel prices;

the maturation of new and expanded stores;

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changes in accounting policies, standards, guidelines or principles as may be adopted by regulatory agencies as well as the Financial Accounting Standards Board;

and those factors contained under the heading “Risk Factors” in Item 1A of Part I of our most recent Annual Report on Form 10-K.

Consequently, actual events affecting the Company and the impact of such events on the Company’s operations may vary significantly from those described in this report or contemplated or implied by statements in this report.

The Company does not undertake and

specifically denies any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments, except to the extent required by applicable law.

and those factors contained under the heading “Risk Factors” in Item 1A of Part I of our most recent Annual Report on Form 10-K for the year ended September 24, 2022, filed by the Company under the Securities Exchange Act of 1934, on November 23, 2022 .

Consequently, actual events affecting the Company and the impact of such events on the Company’s operations may vary significantly from those described in this Quarterly Report on Form 10-Q or contemplated or implied by statements in this Quarterly Report on Form 10-Q.

The Company does not undertake and specifically denies any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments, except to the extent required by applicable law.

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