What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-09 · 73 added, 85 removed, 156 unchanged (50% of the section changed)

9 unchanged sentences

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

For the six months ended March 30, 2024, there were no material changes to our critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 that have had a material impact on our condensed consolidated financial statements and related notes.

For the nine months ended June 29, 2024, there were no material changes to our critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 that have had a material impact on our condensed consolidated financial statements and related notes.

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.

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however, the Company maintains liability coverage.

At March 30, 2024 the Company’s self-insurance reserves totaled $34.6 million.

This amount included $4.6 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable.

At June 29, 2024 the Company’s self-insurance reserves totaled $34.5 million.

This amount included $4.1 million of expected self-insurance recoveries from excess cost insurance or other sources that were recorded as a receivable.

Asset Impairments

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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 six-month period ended March 30, 2024.

There were no asset impairments during the nine-month period ended June 29, 2024.

Vendor Allowances

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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 $35.8 million and $29.8 million for the fiscal quarters ended March 30, 2024 and March 25, 2023, respectively.

For the six-month periods ended March 30, 2024 and March 25, 2023, vendor allowances applied as a reduction of merchandise costs totaled $72.6 million and $64.6 million, respectively.

Vendor allowances applied as a reduction of merchandise costs totaled $34.3 million and $31.4 million for the fiscal quarters ended June 29, 2024 and June 24, 2023, respectively.

For the nine-month periods ended June 29, 2024 and June 24, 2023, vendor allowances applied as a reduction of merchandise costs totaled $106.9 million and $96.0 million, 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 $2.3 million and $1.9 million for the fiscal quarters ended March 30, 2024 and March 25, 2023, respectively.

For the six-month periods ended March 30, 2024 and March 25, 2023, vendor advertising allowances recorded as a reduction of advertising expense totaled $4.2 million and $3.9 million, respectively.

Vendor advertising allowances recorded as a reduction of advertising expense totaled $2.1 million for each of the fiscal quarters ended June 29, 2024 and June 24, 2023.

For the nine-month periods ended June 29, 2024 and June 24, 2023, vendor advertising allowances recorded as a reduction of advertising expense totaled $6.3 million and $6.0 million, 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 the three and six-month periods ended March 30, 2024 and March 25, 2023 both include 13 and 26 weeks of operations, respectively.

The Condensed Consolidated Statements of Income for the three- and nine-month periods ended June 29, 2024 and June 24, 2023 each include 13 and 39 weeks of operations, 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 both the three- and six-month periods ended March 30, 2024 and March 25, 2023, comparable store sales included 198 stores.

For both the three- and nine-month periods ended June 29, 2024 and June 24, 2023, comparable store sales included 198 stores.

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

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

Operating and administrative expenses

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Income tax expense

Three Months Ended March 30, 2024 Compared to the Three Months Ended March 25, 2023

Net income for the second quarter of fiscal 2024 totaled $31.9 million, compared with net income of $40.5 million for the second quarter of fiscal 2023.

The decrease related primarily to increased expenses, as described below.

Net sales decreased by $13.1 million, or 0.95%, to $1.37 billion for the three months ended March 30, 2024 compared with $1.38 billion for the three months ended March 25, 2023.

Three Months Ended June 29, 2024 Compared to the Three Months Ended June 24, 2023

Net income for the third quarter of fiscal 2024 totaled $31.7 million compared with net income of $48.3 million for the third quarter of fiscal 2023.

The decrease related primarily to an increase in operating and administrative expenses as a percentage of sales.

Net sales decreased by $40.3 million, or 2.8%, to $1.39 billion for the three months ended June 29, 2024 compared with $1.43 billion for the three months ended June 24, 2023.

Excluding fuel sales, total grocery comparable store sales decreased 4.1% over the comparative fiscal quarter.

Ingles operated 198 stores at both March 30, 2024 and March 25, 2023.

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

Ingles operated 198 stores at both June 29, 2024 and June 24, 2023.

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

Three Months Ended

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The “Perishables” category includes meat, produce, deli and bakery.

Changes in retail grocery sales for the quarter ended March 30, 2024 are summarized as follows (in thousands):

Total retail sales for the three months ended March 25, 2023

Changes in retail grocery sales for the quarter ended June 29, 2024 are summarized as follows (in thousands):

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

Comparable store sales decrease (including fuel)

Effect of Easter in second quarter of fiscal 2024

Total retail sales for the three months ended March 30, 2024

Total retail sales for the three months ended June 29, 2024

Gross Profit.

Gross profit for the three-month period ended March 30, 2024 totaled $321.9 million, a decrease of $4.1 million, or 1.2%, compared with gross profit of $325.9 million for the three-month period ended March 25, 2023.

Gross profit as a percentage of sales was 23.5% and 23.6% for the three months ended March 30, 2024 and March 25, 2023, 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.

Gross profit for the three-month period ended June 29, 2024 totaled $329.8 million, a decrease of $8.3 million, or 2.5%, compared with gross profit of $338.1 million for the three-month period ended June 24, 2023.

Gross profit as a percentage of sales was 23.7% and 23.6% for the three months ended June 29, 2024 and June 24, 2023, respectively.

Operating and Administrative Expenses.

Operating and administrative expenses increased $15.9 million, or 5.9%, to $284.8 million for the three months ended March 30, 2024, from $268.9 million for the three months ended March 25, 2023.

As a percentage of sales, operating and administrative expenses were 20.8% and 19.5% for the March 2024 and March 2023 quarters, respectively.

Operating and administrative expenses increased $15.3 million, or 5.7%, to $286.3 million for the three months ended June 29, 2024, from $270.9 million for the three months ended June 24, 2023.

As a percentage of sales, operating and administrative expenses were 20.5% and 18.9% for the June 2024 and June 2023 quarters, respectively.

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

Increase as a

Salaries and wages

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

Insurance expense increased due to higher claim volume for our self-insured employee benefit plans.

Insurance expense increased due to higher claim volume for the Company’s self-insured employee benefit plans.

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.

Gain from Sale or Disposal of Assets.

Gain from the sale or disposal of assets totaled $7.7 million for the three months ended March 30, 2024, primarily from the exchange of adjacent property.

Gain from the sale or disposal of assets totaled $0.6 million for the three months ended March 25, 2023.

Gain from the sale or disposal of assets totaled $643.0 thousand for the three months ended June 29, 2024.

During the quarter ended June 24, 2023, the gain from the sale or disposal of assets was $116.2 thousand.

Interest Expense.

Interest expense totaled $5.6 million for the three-month period ended March 30, 2024 compared with $5.3 million for the three-month period ended March 25, 2023.

The increase related primarily to higher interest rates applicable to our variable rate indebtedness.

Total debt at March 2024 was $539.1 million compared with $556.7 million at March 2023.

Interest expense totaled $5.4 million for each of the three-month periods ended June 29, 2024 and June 24, 2023.

Total debt at June 2024 was $535.9 million compared with $553.4 million at June 2023.

Income Taxes.

Income tax expense totaled $10.7 million for the three months ended March 30, 2024, reflecting an effective tax rate of 25.1% of pretax income.

Income tax expense totaled $13.5 million for the three months ended March 25, 2023, reflecting an effective tax rate of 25.0% of pretax income.

Net income totaled $31.9 million for the three-month period ended March 30, 2024 compared with $40.5 million for the three-month period ended March 25, 2023.

Basic and diluted earnings per share for Class A Common Stock were $1.72 and $1.68, respectively, for the March 2024 quarter, compared to $2.18 and $2.13, respectively, for the March 2023 quarter.

Basic and diluted earnings per share for Class B Common Stock were each $1.56 for the March 2024 quarter compared with $1.98 for the March 2023 quarter.

Six Months Ended March 30, 2024 Compared to the Six Months Ended March 25, 2023

Net income for the first half of fiscal 2024 totaled $75.3 million, compared with net income of $109.9 million for the first half of fiscal 2023.

The decrease related primarily to increased expenses, as described below.

Net sales decreased by $25.4 million, or 0.88%, to $2.85 billion for the six months ended March 30, 2024 compared with $2.87 billion for the six months ended March 25, 2023.

Excluding fuel sales, total grocery comparable store sales increased 0.43% over the comparative six-month period.

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

Six Months Ended

Income tax expense totaled $10.6 million for the three months ended June 29, 2024 and $15.7 million for the three months ended June 24, 2023, reflecting effective tax rates of 25.1% and 24.6%, respectively.

Net income totaled $31.7 million for the three-month period ended June 29, 2024 compared with $48.3 million for the three-month period ended June 24, 2023.

Basic and diluted earnings per share for Class A Common Stock were $1.71 and $1.67, respectively, for the June 2024 quarter, compared to $2.60 and $2.54, respectively, for the June 2023 quarter.

Basic and diluted earnings per share for Class B Common Stock were each $1.55 for the June 2024 quarter compared with $2.36 for the June 2023 quarter.

Nine Months Ended June 29, 2024 Compared to the Nine Months Ended June 24, 2023

Net income for the nine months ended June 29, 2024 totaled $107.0 million, compared with net income of $158.2 million for the nine months ended June 24, 2023.

Net sales decreased by $65.7 million, or 1.5%, to $4.24 billion for the nine months ended June 29, 2024 compared with $4.31 billion for the nine months ended June 24, 2023 .

Excluding fuel sales, total grocery comparable store sales decreased 1.1% over the comparative nine-month period.

Ingles operated 198 stores at both June 29, 2024 and June 24, 2023.

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

Nine Months Ended

Total retail grocery

Changes in retail grocery sales for the quarter ended March 30, 2024 are summarized as follows (in thousands):

Total retail sales for the six months ended March 25, 2023

Changes in retail grocery sales for the nine months ended June 29, 2024 are summarized as follows (in thousands):

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

Comparable store sales increase (including fuel)

Effect of Easter in second quarter of fiscal 2024

Total retail sales for the six months ended March 30, 2024

Total retail sales for the nine months ended June 29, 2024

The “Grocery” category includes grocery, dairy, and frozen foods.

2 unchanged sentences

Gross Profit.

Gross profit for the six-month period ended March 30, 2024 totaled $670.7 million, a decrease of $26.4 million, or 3.79%, compared with gross profit of $697.1 million for the six-month period ended March 25, 2023.

Gross profit as a percentage of sales was 23.5% and 24.3% for the six months ended March 30, 2024 and March 25, 2023, respectively.

Gross profit for the nine-month period ended June 29, 2024 totaled $1.00 billion, a decrease of $34.8 million, or 3.36%, compared with gross profit of $1.04 billion for the nine-month period ended June 24, 2023.

Gross profit as a percentage of sales was 23.6% and 24.0% for the nine months ended June 29, 2024 and June 24, 2023, respectively.

Operating and Administrative Expenses.

Operating and administrative expenses increased $29.5 million, or 5.4%, to $574.6 million for the six months ended March 30, 2024, from $545.1 million for the six months ended March 25, 2023.

As a percentage of sales, operating and administrative expenses were 20.2% and 19.0% for the March 2024 and March 2023 six-month periods, respectively.

Operating and administrative expenses increased $44.9 million, or 5.5%, to $860.8 million for the nine months ended June 29, 2024, from $816.0 million for the nine months ended June 24, 2023.

As a percentage of sales, operating and administrative expenses were 20.3% and 18.8% for the June 2024 and June 2023 nine-month periods, respectively.

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

1 unchanged sentence

Repairs and maintenance

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

Insurance expense increased due to higher claim volume and costs related to the self-insured employee benefits.

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 .

Insurance expense increased due to higher claim volume for the Company’s self-insured employee benefit plans.

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.

Gain from Sale or Disposal of Assets.

Gain from the sale or disposal of assets totaled $8.3 million for the six months ended March 30, 2024, as compared to $1.4 million for the six months ended March 25, 2023.

During the nine months ended June 29, 2024, the gain from the sale or disposal of assets totaled $9.0 million, primarily due to the exchange of adjacent properties, compared to $1.5 million during the nine months ended June 24, 2023.

Interest Expense.

Interest expense totaled $11.3 million for the six-month period ended March 30, 2024 compared with $10.7 million for the six -month period ended March 25, 2023.

The increase related primarily to higher interest rates applicable to our variable rate indebtedness.

Total debt at March 2024 was $539.1 million compared with $556.7 million at March 2023.

Interest expense totaled $16.7 million for the nine-month period ended June 29, 2024 compared with $16.1 million for the nine-month period ended June 24, 2023.

Income Taxes.

Income tax expense totaled $24.8 million for the six months ended March 30, 2024, reflecting an effective tax rate of 24.8% of pretax income.

Income tax expense totaled $36.0 million for the six months ended March 25, 2023, reflecting an effective tax rate of 24.7% of pretax income.

Net income totaled $75.3 million for the six-month period ended March 30, 2024 compared with $109.9 million for the six-month period ended March 25, 2023.

Basic and diluted earnings per share for Class A Common Stock were $4.05 and $3.96, respectively, for the six months ended March 30, 2024, compared to $5.92 and $5.79, respectively, for the six months ended March 25, 2023.

Basic and diluted earnings per share for Class B Common Stock were each $3.68 for the six months ended March 30, 2024 compared with $5.38 for the six months ended March 25, 2023.

Income tax expense totaled $35.5 million for the nine months ended June 29, 2024 and $51.7 million for the nine months ended June 24, 2023, reflecting effective tax rates of 24.9% and 24.6%, respectively.

Net income totaled $107.0 million for the nine-month period ended June 29, 2024 compared with $158.2 million for the nine-month period ended June 24, 2023.

Basic and diluted earnings per share for Class A Common Stock were $5.76 and $5.63, respectively, for the nine months ended June 29, 2024, compared to $8.51 and $8.33, respectively, for the nine months ended June 24, 2023.

Basic and diluted earnings per share for Class B Common Stock were each $5.23 for the nine months ended June 29, 2024 compared with $7.74 for the nine months ended June 24, 2023.

Liquidity and Capital Resources

Capital Expenditures

Capital expenditures totaled $98.4 million for the six-month period ended March 30, 2024.

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 .

Capital expenditures totaled $143.0 million for the nine-month period ended June 29, 2024.

The Company’s capital expenditures include 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.

The Company’s capital expenditure plans for fiscal 2024 currently include investments of approximately $170 to $190 million.

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.

The Company currently plans to dedicate the remainder of its fiscal 2024 capital expenditures to continued improvement of its store base, including remodeling and continued investment in one store expected to open by the end of 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.

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.

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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.

The Company generated $85.9 million net cash from operations for the March 2024 six-month period compared with $94.4 million for the March 2023 six-month period.

Cash from operations decreased by $8.5 million due to lower net income for the March 2024 six-month period compared with the March 2023 six-month period.

Cash used by investing activities for the six-month periods ended March 30, 2024 and March 25, 2023 totaled $94.6 million and $89.6 million, respectively, consisting primarily of capital expenditures and purchases of short term investments.

Cash used by financing activities totaled $17.9 million for the six-month period ended March 30, 2024, compared with $21.7 million for the six-month period ended March 25, 2023.

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

The Company generated $189.3 million net cash from operations for the nine-month period ended June 29, 2024 compared with $177.0 million for the nine-month period ended June 24, 2023.

Net cash from operations increased due to a decrease in working capital needs during the June 2024 nine-month period compared with the June 2023 nine-month period.

Cash used by investing activities for the nine-month periods ended June 29, 2024 and June 24, 2023 totaled $138.5 million and $135.2 million, respectively, consisting primarily of capital expenditures.

Cash used by financing activities totaled $24.5 million for the nine-month period ended June 29, 2024 compared with $28.2 million for the nine-month period ended June 24, 2023.

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

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.

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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 March 30, 2024.

The Line allows the Company to issue up to $10.0 million in letters of credit, of which none were issued at June 29, 2024.

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

At March 30, 2024, the Company had no borrowings outstanding under the Line.

At June 29, 2024, 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”).

The final maturity date of the Bonds is January 1, 2036.

Under a Continuing Covenant and Collateral Agency Agreement (the “Covenant Agreement”) between certain financial institutions and the Company, the financial institutions would hold the Bonds until December 17, 2029, subject to certain events.

Under a Continuing Covenant and Collateral Agency Agreement (the “Covenant Agreement”) between certain financial institutions and the Company, the financial institutions agreed to hold the Bonds until December 17, 2029, subject to certain events.

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 $44.9 million as of March 30, 2024.

The outstanding balance of the Bonds was $49.9 million as of June 29, 2024.

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

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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 are measured quarterly with adjustments recorded in other comprehensive income.

The fair market value of the interest rate swaps is 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 March 30, 2024, 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 March 30, 2024.

As of June 29, 2024, the Company was in compliance with these covenants.

Under the most restrictive of these covenants, the Company would have been permitted to incur approximately $1.2 billion of additional borrowings (including borrowings under the Line) as of June 29, 2024.

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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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 “Exchange Act”).

The words “expect”, “anticipate”, “intend”, “plan”, “likely”, “goal”,

“believe”, “seek”, “will”, “may”, “would”, “should” and similar expressions are intended to identify forward-looking statements.

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.

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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 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;

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, 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;

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

pricing pressures and other competitive factors;

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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