What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-08 compared with 2023-08-03 · 75 added, 128 removed, 119 unchanged (63% of the section changed)

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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 effects of the COVID-19 pandemic, which began in March 2020, have eased considerably over the nine months ended June 24, 2023, but the earlier portion of the pandemic substantially impacted supermarket operations, and some effects have continued through the nine months ended June 24, 2023.

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 continued to monitor and update its protocols as the pandemic evolved.

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

The currently 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 continues to recover from the effects of the pandemic, inflation has recently 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.

While the COVID-19 pandemic was officially declared to have ended in May 2023, at the present time, we do not know how long and to what extent the ongoing effects of the pandemic and inflation will impact our sales and financial performance.

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.

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.

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.

Management estimates, by their nature, involve judgments regarding future uncertainties, and actual results may therefore differ materially from these estimates.

Self-Insurance

The Company is self-insured for workers’ compensation and group medical and dental benefits.

The Company is self-insured for workers’ compensation, general liability, and group medical and dental benefits.

Risks and uncertainties are associated with self-insurance;

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Self-insurance liabilities are established based on claims filed and estimates of claims incurred but not reported.

The estimates are based on data provided by the respective claims administrators.

The estimates are based on data provided by the respective claims administrators which is then applied to appropriate actuarial methods.

These estimates can fluctuate if historical trends are not accurately predictive of the future.

The majority of the Company’s properties are self-insured for casualty losses and business interruption;

however, the Company maintains liability coverage.

At June 24, 2023 the Company’s self-insurance reserves totaled $30.9 million.

however, liability coverage is maintained.

At December 30, 2023, the Company’s self-insurance reserves totaled $34.2 million.

This amount was inclusive of $4.3 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 accounts for the impairment of long-lived assets in accordance with FASB ASC Topic 360.

Asset groups are primarily composed of our individual store and shopping center properties.

For assets to be held and used, the Company tests for impairment using undiscounted cash flows and calculates the amount of impairment using discounted cash flows.

For assets held for sale, impairment is recognized based on the excess of remaining book value over expected recovery value.

The recovery value is the fair value as determined by independent quotes or expected sales prices developed by internal associates.

The recovery value is the fair value as determined by independent quotes or expected sales prices developed by internal associates, net of costs to sell.

Estimates of future cash flows and expected sales prices are judgments based upon the Company’s experience and knowledge of local operations and cash flows that are projected for several years into the future.

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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 24, 2023.

There were no asset impairments during the three-month period ended December 30, 2023.

Vendor Allowances

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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 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.

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 $31.4 million and $25.4 million for the fiscal quarters ended June 24, 2023 and June 25, 2022, respectively.

For the nine-month periods ended June 24, 2023 and June 25, 2022, vendor allowances applied as a reduction of merchandise costs totaled $96.0 million and $83.5 million, respectively.

Vendor allowances applied as a reduction of merchandise costs totaled $36.8 million and $34.4 million for the fiscal quarters ended December 30, 2023 and December 24, 2022, 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 $1.6 million for the fiscal quarters ended June 24, 2023 and June 25, 2022, respectively.

For the nine-month periods ended June 24, 2023 and June 25, 2022, vendor advertising allowances recorded as a reduction of advertising expense totaled $6.0 million and $5.3 million, respectively.

Vendor advertising allowances recorded as a reduction of advertising expense totaled $1.9 million and $2.0 million for the fiscal quarters ended December 30, 2023 and December 24, 2022, respectively.

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.

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

The Condensed Consolidated Statements of Income for both the three- and nine-month periods ended June 24, 2023 and June 25, 2022 include 13 and 39 weeks of operations.

The Condensed Consolidated Statements of Income for the three-month periods ended December 30, 2023 and December 24, 2022 both include 13 weeks of operations.

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

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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- and nine-month periods ended June 24, 2023, comparable store sales included 198 stores.

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

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

For the three-month period ended December 30, 2023, comparable store sales included 198 stores.

For the three-month period ended December 24, 2022, 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 business segments, see Note K “Segment Information” to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q .

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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Income tax expense

Three Months Ended June 24, 2023 Compared to the Three Months Ended June 25, 2022

Net income for the third quarter of fiscal 2023 totaled $48.3 million compared with net income of $67.8 million for the third quarter of fiscal 2022.

The decrease primarily resulted from significant inventory cost increases and higher costs to retain and keep associates.

Net sales decreased by $24.3 million, or 1.7%, to $1.43 billion for the three months ended June 24, 2023 compared with $1.46 billion for the three months ended June 25, 2022, which was driven primarily by a reduction in fuel sales, partially offset by an increase in grocery, non-foods and perishables sales, as set forth in the table below .

Three Months Ended December 30, 2023 Compared to the Three Months Ended December 24, 2022

Net income for the first quarter of fiscal 2024 totaled $43.4 million, compared with net income of $69.4 million for the first quarter of fiscal 2023.

Total sales, less fuel, increased by 0.2%.

As described below, corresponding increases, as a percentage of sales, in costs of goods sold and operating expenses resulted in lower pre-tax income.

Net sales decreased by $12.3 million, or 0.82%, to $1.48 billion for the three months ended December 30, 2023 compared with $1.49 billion for the three months ended December 24, 2022.

The three months ended December 24, 2022 included a record week of sales due to weather related events.

Excluding fuel sales, total grocery comparable store sales increased 1.0% over the comparative fiscal quarter.

Ingles operated 198 stores at both June 24, 2023 and June 25, 2022.

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 24, 2023 are summarized as follows (in thousands):

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

Comparable store sales decrease (including fuel)

Total retail sales for the three months ended June 24, 2023

Ingles operated 198 stores at both December 30, 2023 and December 24, 2022.

Changes in retail grocery sales for the quarter ended December 30, 2023 are summarized as follows (in thousands):

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

Comparable store sales increase (including fuel)

Total retail sales for the three months ended December 30, 2023

Gross Profit.

Gross profit for the three-month period ended June 24, 2023 totaled $338.1 million, a decrease of $13.8 million, or 3.9%, compared with gross profit of $351.9 million for the three-month period ended June 25, 2022.

Gross profit as a percentage of sales was 23.6% and 24.1% for the three months ended June 24, 2023 and June 25, 2022, respectively.

Gross profit for the three-month period ended December 30, 2023 totaled $348.8 million, a decrease of $22.4 million, or 6.0%, compared with gross profit of $371.2 million for the three-month period ended December 24, 2022.

Gross profit as a percentage of sales was 23.6% for the three months ended December 30, 2023 as compared to 24.9% for the three months ended December 24,

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 182 basis points for the quarter ended December 30, 2023, as compared with the quarter ended December 24, 2022.

Operating and Administrative Expenses.

Operating and administrative expenses increased $13.6 million, or 5.3%, to $270.9 million for the three months ended June 24, 2023, from $257.3 million for the three months ended June 25, 2022.

As a percentage of sales, operating and administrative expenses were 18.9% and 17.7% for the June 2023 and June 2022 quarters, respectively.

Excluding fuel sales and associated fuel operating expenses (primarily payroll), operating expenses were 21.7% of sales for the third fiscal quarter of 2023 compared with 21.4% for the third fiscal quarter of 2022.

Operating and administrative expenses increased $13.6 million, or 4.9%, to $289.8 million for the three months ended December 30, 2023, as compared to $276.2 million for the three months ended December 24, 2022.

As a percentage of sales, operating and administrative expenses were 19.6% and 18.5% for the December 2023 and December 2022 quarters, respectively.

Excluding fuel sales and associated fuel operating expenses (primarily payroll), operating expenses were 22.0% of sales for the first fiscal quarter of 2024 compared with 21.0% for the first fiscal quarter of 2023.

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

Salaries and wages

Repairs and maintenance

Advertising and promotion

Taxes and licenses

Professional fees

Salaries and wages increased in dollars due to increased labor market competition, which has increased the Company’s cost to attract and retain associates in the Company’s market area.

Repairs and maintenance increased due to higher refrigerant costs and the cost of other supply items, as well as increased wear and tear on equipment to accommodate sales volume.

Advertising and promotion costs decreased due to absorbing some of the activity in-house and moving towards lower-cost types of advertising .

Gain from Sale or Disposal of Assets.

Gain from the sale or disposal of assets totaled $116.2 thousand for the three months ended June 24, 2023.

During the quarter ended June 25, 2022, the gain from the sale or disposal of assets was $26.7 thousand.

Interest Expense.

Interest expense totaled $5.4 million for the three-month period ended June 24, 2023 compared with $5.3 million for the three-month period ended June 25, 2022.

Total debt at June 2023 was $553.4 million compared with $575.2 million at June 2022.

Income Taxes.

Income tax expense totaled $15.7 million for the three months ended June 24, 2023 and $22.7 million for the three months ended June 25, 2022, reflecting effective income tax rates of 24.6% and 25.1%, respectively.

Net income totaled $48.3 million for the three-month period ended June 24, 2023 compared with $67.8 million for the three-month period ended June 25, 2022.

Basic and diluted earnings per share for Class A Common Stock were $2.60 and $2.54, respectively, for the June 2023 quarter, compared to $3.65 and $3.57, respectively, for the June 2022 quarter.

Basic and diluted earnings per share for Class B Common Stock were each $2.36 for the June 2023 quarter compared with $3.32 for the June 2022 quarter.

Nine Months Ended June 24, 2023 Compared to the Nine Months Ended June 25, 2022

Net income for the nine months ended June 24, 2023 totaled $158.2 million, compared with net income of $202.6 million for the first nine months of fiscal 2022.

The decrease primarily resulted from significant inventory cost increases and higher costs to retain and keep associates.

Net sales increased by $81.0 million, or 1.9%, to $4.31 billion for the nine months ended June 24, 2023 compared with $4.23 billion for the nine months ended June 25, 2022 , which was driven primarily by an increase in grocery, non-foods and perishables sales, partially offset by a decrease in fuel sales, as set forth in the table below.

Excluding fuel sales, total grocery comparable store sales increased 4.4% over the comparative nine-month period.

Ingles operated 198 stores at both June 24, 2023 and June 25, 2022.

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

Nine Months Ended

Total retail grocery

Changes in retail grocery sales for the nine months ended June 24, 2023 are summarized as follows (in thousands):

Total retail sales for the nine months ended June 25, 2022

Comparable store sales increase (including fuel)

Total retail sales for the nine months ended June 24, 2023

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 nine-month period ended June 24, 2023 totaled $1.04 billion, a decrease of $15.8 million, or 1.5%, compared with gross profit of $1.05 billion for the nine-month period ended June 25, 2022.

Gross profit as a percentage of sales was 24.0% and 24.9% for the nine months ended June 24, 2023 and June 25, 2022, respectively.

The decrease in gross profit resulted primarily from the effects of inflation and supply chain pressures, which have increased the cost of goods sold.

Operating and Administrative Expenses.

Operating and administrative expenses increased $43.8 million, or 5.7%, to $816.0 million for the nine months ended June 24, 2023, from $772.2 million for the nine months ended June 25, 2022.

As a percentage of sales, operating and administrative expenses were 18.9% and 18.3% for the June 2023 and June 2022 nine-month periods, respectively.

Excluding fuel sales and associated fuel operating expenses (primarily payroll), operating expenses were 21.6% of sales for the first nine months of 2023 compared with 21.4% for the first nine months of 2022.

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

Salaries and wages

Repairs and maintenance

Advertising and promotion

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

Repairs and maintenance expense increased due to higher refrigerant costs and the cost of other supply items, as well as increased wear and tear on equipment to accommodate sales volume.

Advertising and promotion costs decreased due to absorbing some of the activity in-house and moving towards lower-cost types of advertising .

Gain from Sale or Disposal of Assets.

During the nine months ended June 24, 2023, the gain from the sale or disposal of assets totaled $1.5 million compared to $1.2 million during the nine months ended June 25, 2022.

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

Taxes and license expense increased in dollars due to higher taxable expenses and timing of payment.

Professional fees increased in dollars due to investments the Company has made in its information technology services and in technology transformation projects.

Other Income.

Other income totaled $3.6 million for the three months ended December 30, 2023 compared with $1.4 million for the three months ended December 24, 2022.

The increase was primarily due to increased interest income on cash balance.

Interest Expense.

Interest expense totaled $16.1 million for both the nine-month period ended June 24, 2023 and for the nine-month period ended June 25, 2022.

Interest expense totaled $5.7 million for the three-month period ended December 30, 2023 compared with $5.3 million for the three-month period ended December 24, 2022.

Total debt at December 30, 2023 was $546.9 million compared with $564.5 million at December 24, 2022.

Income Taxes.

Income tax expense totaled $51.7 million for the nine months ended June 24, 2023 and $65.5 million for the nine months ended June 25, 2022, relecting an effective tax rate of 24.6% and 25.1%, respectively.

Net income totaled $158.2 million for the nine-month period ended June 24, 2023 compared with $202.6 million for the nine-month period ended June 25, 2022.

Basic and diluted earnings per share for Class A Common Stock were $8.51 and $8.33, respectively, for the nine months ended June 24, 2023, compared to $10.91 and $10.67, respectively, for the nine months ended June 25, 2022.

Basic and diluted earnings per share for Class B Common Stock were each $7.74 for the nine-months ended June 24, 2023 compared with $9.92 for the nine months ended June 25, 2022.

Income tax expense totaled $14.1 million for the three months ended December 30, 2023, reflecting an effective tax rate of 24.6% of pretax income.

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.

Net income totaled $43.4 million for the three-month period ended December 30, 2023 compared with $69.4 million for the three-month period ended December 24, 2022.

Basic and diluted earnings per share for Class A Common Stock were $2.33 and $2.28, respectively, for the December 2023 quarter, compared to $3.73 and $3.65, respectively, for the December 2022 quarter.

Basic and diluted earnings per share for Class B Common Stock were each $2.12 for the December 2023 quarter compared with $3.40 for the December 2022 quarter.

Liquidity and Capital Resources

Capital Expenditures

Capital expenditures totaled $137.1 million for the nine-month period ended June 24, 2023.

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

Capital expenditures totaled $63.2 million for the three-month period ended December 30, 2023.

The Company’s capital expenditures included 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 2024 currently include investments of approximately $160 to $200 million.

The Company currently plans to dedicate the remainder of its fiscal 2023 capital expenditures to continued improvement of its store base, 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

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 currently plans to dedicate the majority of its fiscal 2024 capital expenditures to continued improvement of its store base, including remodeling, and continued investment in one store expected to open in fiscal 2024, as well as technology improvements, upgrading and replacing existing store, warehouse and transportation equipment and improvements to the Company’s milk processing plant.

Notwithstanding higher anticipated capital expenditures for fiscal 2024, the Company currently expects that its annual capital expenditures will be in the range of approximately $120 to $160 million going forward in order to maintain a modern store base.

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 generated $177.0 million net cash from operations for the nine-month period ended June 24, 2023 compared with $261.6 million for the nine-month period ended June 25, 2022.

Net cash from operations decreased due to lower net income and increased working capital needs during the 2023 period compared with the 2022 period.

Cash used by investing activities for the nine-month periods ended June 24, 2023 and June 25, 2022 totaled $135.2 million and $181.8 million, respectively, consisting primarily of capital expenditures and purchases of short term investments.

Increased current year capital expenditures and no purchases of short term investments as compared to the prior year period accounted for the difference in investing activities between the two nine-month periods.

Cash used by financing activities totaled $28.2 million for the nine-month period ended June 24, 2023 compared with $24.1 million for the nine-month period ended June 25, 2022.

The increase was primarily related to principal payments on long-term debt.

The Company generated $15.5 million net cash from operations for the December 2023 three-month period compared with $57.3 million for the December 2022 three-month period.

The decrease was primarily attributable to higher working capital needs and lower net income .

Cash used by investing activities for the three-month periods ended December 30, 2023 and December 24, 2022 totaled $62.4 million and $58.2 million, respectively.

Cash used by financing activities totaled $6.7 million for the three-month period ended December 30, 2023, compared with $10.7 million of cash used by financing activities for the three-month period ended December 24, 2022.

During the quarter ended December 24, 2022, the Company repaid $4.2 million of mortgage debt whereas the Company made no comparable payment in the December 30, 2023 quarter.

Dollar LIBOR panel ceased following June 30, 2023, and the Company’s debt agreements and interest rate swaps that utilized LIBOR discontinued the use of LIBOR and adopted SOFR, which did not materially impact our condensed consolidated unaudited interim financial statements.

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

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

The Line allows the Company to issue up to $10.0 million in letters of credit, of which none were issued at June 24, 2023.

The Line allows the Company to issue up to $10.0 million in letters of credit, of which none were issued at December 30, 2023.

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

At June 24, 2023, the Company had no borrowings outstanding under the Line.

At December 30, 2023, 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 was $54.4 million as of June 24, 2023.

The outstanding balance of the Bonds is $54.4 million as of December 30, 2023.

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

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The Company’s long-term debt agreements generally contain provisions that under certain circumstances would permit lending institutions to terminate or withdraw their respective extensions of credit to the Company.

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 24, 2023, the Company was in compliance with these covenants.

Under the most restrictive of these covenants, the Company would have been permitted to incur approximately $2.0 billion of additional borrowings (including borrowings under the Line) as of June 24, 2023.

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 30, 2023, the Company was in compliance with these covenants.

Under the most restrictive of these covenants, the Company would have been permitted to incur approximately $1.7 billion of additional borrowings (including borrowings under the Line) as of December 30, 2023.

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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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, 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 .

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 a resurgence of the COVID-19 pandemic or variants of the virus, 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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Impact of Inflation

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

Food costs remain high, reflecting a tight labor market and supply chain transportation disruptions, while energy costs have decreased.

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.

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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, and, while inflation has moderated during the quarter ended June 24, 2023, it continues to impact food costs, transportation costs, and labor costs.

During the past twelve months, inflation has declined from recent highs, impacting food costs, transportation costs and labor costs.

Twelve Months Ended

December 2023

Forward Looking Statements

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

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

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.

Some of these assumptions inevitably will not materialize, and unanticipated events will occur which will affect the Company’s results.

Some important factors (but not necessarily all factors) that affect the Company’s revenues, financial position, growth strategies, profitability and operating results, or that otherwise could cause actual results to differ materially from those expressed in or implied by any forward-looking statement, include the potential continued impact of the COVID-19 pandemic, a resurgence of the COVID-19 pandemic or variants of the virus on our business and economic conditions generally in the Company’s operating area;

Some important factors (but not necessarily all factors) that affect the Company’s revenues, financial position, growth strategies, profitability and operating results, or that otherwise could cause actual results to differ materially from those expressed in or implied by any forward-looking statement, include the resurgence of the COVID-19 pandemic or variants of the virus on our business and economic conditions generally in the Company’s operating area;

the Company’s ability to successfully implement its expansion and operating strategies and to manage rapid expansion;

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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