What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-06 compared with 2024-08-08 · 91 added, 115 removed, 114 unchanged (64% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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).

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

At December 28, 2024, three of the four stores temporarily closed due to damages sustained in Hurricane Helene remained closed, but they are expected to reopen during 2025.

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.

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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.

Critical Accounting Estimates

Critical accounting estimates are those 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.

Impact of Hurricane Helene

On September 27, 2024, Hurricane Helene severely impacted western North Carolina, including the area where the Company’s headquarters are located, resulting in catastrophic flooding and destruction, power and communication outages, water outages, major road closures, and loss of life.

For the year ended September 28, 2024, the Company recognized an impairment loss of $30.4 million related to inventory damaged or destroyed by Hurricane Helene.

Additionally, the Company recognized a property and equipment impairment loss of $4.5 million for the year ended September 28, 2024 pertaining to the same storm, for which insurance proceeds of

$1.0 million were received during October 2024.

These recorded losses did not include future repairs and rebuilds, nor did they account for revenue lost due to store closures or electronic payment disruptions.

The Company’s properties, including its distribution center, were impacted;

however, the distribution center returned to full operation within two weeks following the storm.

Four stores sustained damage that required that they be temporarily closed.

As of the date of this Quarterly Report on Form 10-Q, one of the four stores has reopened and the three remaining stores are currently expected to reopen during 2025.

In addition, during the quarter ended December 28, 2024, the Company incurred approximately $5.4 million in cleanup and repair costs as a result of Hurricane Helene.

Critical Accounting Policies and Estimates

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.

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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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 predictive of the future.

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 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.

however, liability coverage is maintained.

At December 28, 2024, the Company’s self-insurance reserves totaled $36.7 million.

This amount included $4.0 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable.

Asset Impairments

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 stores and shopping center properties.

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.

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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 29, 2024.

There were no asset impairments during the three-month period ended December 28, 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 $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 allowances applied as a reduction of merchandise costs totaled $35.1 million and $36.8 million for the fiscal quarters ended December 28, 2024 and December 30, 2023, 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 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.

Vendor advertising allowances recorded as a reduction of advertising expense totaled $1.3 million and $1.9 million for the fiscal quarters ended December 28, 2024 and December 30, 2023, 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 nine-month periods ended June 29, 2024 and June 24, 2023 each include 13 and 39 weeks of operations, respectively.

The Condensed Consolidated Statements of Income for the three-month periods ended December 28, 2024 and December 30, 2023 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 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 29, 2024 and June 24, 2023, comparable store sales included 198 stores.

For the three-month period ended December 28, 2024, comparable store sales included 195 stores, which excludes the three stores that remain closed due to the impact of Hurricane Helene.

For the three-month period ended December 30, 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.

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Three Months Ended

Nine Months Ended

Operating and administrative expenses

Gain from sale or disposal of assets

Gain from asset disposals

Income from operations

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Income tax expense

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.

Three Months Ended December 28, 2024 Compared to the Three Months Ended December 30, 2023

Net income for the first quarter of fiscal 2025 totaled $16.6 million, compared with net income of $43.4 million for the first quarter of fiscal 2024.

Total sales, less fuel, decreased by 11.7%.

Net sales decreased by $193.0 million, or 13.0%, to $1.29 billion for the three months ended December 28, 2024 compared with $1.48 billion for the three months ended December 30, 2023.

The Company estimates that approximately $55 to $65 million of revenue was lost during the three-week period immediately following the storm due to road and power outages which prevented some stores from opening or maintaining normal store hours, as well as due to electronic payment disruptions as a result of Hurricane Helene.

Excluding fuel sales, total grocery comparable store sales decreased 9.4% over the comparative fiscal quarter.

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

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 29, 2024 are summarized as follows (in thousands):

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

Ingles operated 198 stores at both December 28, 2024 and December 30, 2023;

however, three stores damaged by Hurricane Helene remained closed at December 28, 2024.

Changes in retail grocery sales for the quarter ended December 28, 2024 as compared to the quarter ended December 30, 2023 are summarized as follows (in thousands):

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

Comparable store sales decrease (including fuel)

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

Gross Profit.

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 $15.3 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:

Salaries and wages

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 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 $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 $5.4 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 $10.6 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 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)

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

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 .

Impact of stores that remain closed

Total retail sales for the three months ended December 28, 2024

Gross Profit.

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.

Gross profit for the three-month period ended December 28, 2024 totaled $301.1 million, a decrease of $47.7 million, or 13.7%, compared with gross profit of $348.8 million for the three-month period ended December 30, 2023.

Gross profit as a percentage of sales was 23.4% for the three months ended December 28, 2024 as compared to 23.6% for the three months ended December 30, 2023.

Retail segment gross profit, excluding fuel increased 25 basis points for the quarter ended December 28, 2024 as compared with the quarter ended December 30, 2023.

Operating and Administrative Expenses.

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.

Operating and administrative expenses decreased by $9.1 million, or 3.1%, to $280.7 million for the three months ended December 28, 2024, as compared to $289.8 million for the three months ended December 30, 2023.

Operating expenses were lower as a result of the forced closure of four stores due to the impact of Hurricane Helene, which temporarily reduced number of associates due to their inability to return, or regularly return, to work for several weeks after the storm, and our receipt of $1.0 million of insurance proceeds related to property loss due to Hurricane Helene.

The reduction in operating expenses was partially offset by approximately $5.4 million of cleanup and repair costs incurred as a result of Hurricane Helene.

As a percentage of sales, operating and administrative expenses were 21.8% and 19.6% for the December 2024 and December 2023 quarters, respectively.

Excluding fuel sales and associated fuel operating expenses (primarily payroll), operating expenses were 24.3% of sales for the first fiscal quarter of 2025 compared with 22.0% for the first fiscal quarter of 2024.

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

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Repairs and maintenance

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.

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.

Depreciation and amortization

Professional fees

Salaries and wages decreased in dollars due to the impact of Hurricane Helene, including the temporary closure of four stores, of which three currently remain closed, disruption at other stores due to storm-related power losses and difficulties for associates to get to work due to the damages caused by Hurricane Helene.

Repairs and maintenance expense increased due to the cleanup and repairs required by Hurricane Helene.

Bank charges decreased due to decreased activity related to loss of internet connectivity after the storm, which temporarily disrupted the ability to accept credit and debit cards.

Depreciation and amortization increased due to acquired real property and implementation of information technology systems and upgrades.

Professional fees increased in dollars due to professional services required as a result of Hurricane Helene and investments the Company has made in its information technology systems and in technology transformation projects.

Other Income.

Other income totaled $3.3 million for the three months ended December 28, 2024 compared with $3.6 million for the three months ended December 30, 2023.

Interest Expense.

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.

Interest expense totaled $5.0 million for the three-month period ended December 28, 2024 compared with $5.7 million for the three-month period ended December 30, 2023.

Total debt at December 28, 2024 was $529.4 million compared with $546.9 million at December 30, 2023.

Income Taxes.

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.

Income tax expense totaled $5.3 million for the three months ended December 28, 2024, reflecting an effective tax rate of 24.1% of pretax income.

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.

Net income totaled $16.6 million for the three-month period ended December 28, 2024 compared with $43.4 million for the three-month period ended December 30, 2023.

Basic and diluted earnings per share for Class A Common Stock were $0.89 and $0.87, respectively, for the December 2024 quarter, compared to $2.33 and $2.28, respectively, for the December 2023 quarter.

Basic and diluted earnings per share for Class B Common Stock were each $0.81 for the December 2024 quarter compared with $2.12 for the December 2023 quarter.

Liquidity and Capital Resources

Capital Expenditures

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.

Capital expenditures totaled $37.8 million for the three-month period ended December 28, 2024.

The Company’s capital expenditures included the continued construction of a new store opening in 2025, 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 2025 currently include investments of approximately $120 to $160 million.

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.

The Company currently plans to dedicate the majority of its fiscal 2025 capital expenditures to continued improvement of its store base, including the re-opening of the stores temporarily closed due to Hurricane Helene, remodeling, and continued investment in one store expected to open in fiscal 2025, 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 2025, the Company currently expects that its annual capital expenditures will be in the range of approximately $100 to $160 million going forward 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.

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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 $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.

The Company used $43.6 million net cash for operations for the three months ended December 28, 2024 compared with $15.5 million provided by operations for the three months ended December 30, 2023.

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

Cash used by investing activities for the three-month periods ended December 28, 2024 and December 30, 2023 totaled $33.9 million and $62.4 million, respectively, primarily related to reduced capital expenditures.

Cash used by financing activities totaled $6.7 million for both the three-month periods ended December 28, 2024 and December 30, 2023.

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 29, 2024.

The Line allows the Company to issue up to $10.0 million in letters of credit, of which none were issued at December 28, 2024.

The Company is not required to maintain compensating balances in connection with 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”).

At December 28, 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 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 agreed to hold the Bonds until December 17, 2029, subject to certain events.

The Project was completed in 2012.

Under a Continuing Covenant and Collateral Agency Agreement (the “Covenant Agreement”) between certain financial institutions and the Company, the financial institutions have 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 $49.9 million as of June 29, 2024.

The outstanding balance of the Bonds was $49.9 million as of December 28, 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 $0.5 million and mature October 1, 2027.

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

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

The Company has an interest rate swap agreement for a current notional amount of $115.0 million at a fixed rate of 2.998%.

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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 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.

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 Line, Bonds and Notes indenture in the event of default under any one instrument.

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 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.

Included among the triggering factors permitting the termination or withdrawal of the Line are certain events of default, including both monetary and non-monetary defaults,

the initiation of bankruptcy or insolvency proceedings, or the failure of the Company to meet certain financial covenants designated in its loan documents.

As of December 28, 2024, the Company was in compliance with these covenants.

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

The Company believes, based on its current results of operations and financial condition, that its financial resources, including the Line, short- and long-term financing expected to be available to it and internally generated funds, will be sufficient to meet planned capital expenditures and working capital requirements for the foreseeable future, including any debt service requirements of additional borrowings.

The Company believes, based on its current results of operations and financial condition, that its financial resources, including the Line, short- and long-term financing expected to be available to it and operating cash flow, will be sufficient to meet planned capital expenditures and working capital requirements for the foreseeable future, including any debt service requirements of additional borrowings.

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 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 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 .

These factors may include, among others, increased competition, changing regional and national economic conditions, adverse climatic conditions affecting food production and delivery, natural disasters, changing demographics, and pandemics or other health emergencies, as well as the additional factors discussed below under “Forward Looking Statements” and under the heading “Risk Factors” contained in our most recently filed Annual Report on Form 10-k, as well as under similar headings in our Quarterly Reports on Form 10-Q and our other filings with the Securities and Exchange Commission.

Quarterly Cash Dividends

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The Company pays these dividends at the discretion of the Board of Directors and the continuation of these payments, the amount of such dividends, and the form in which the dividends are paid (cash or stock) depends upon the results of operations, the financial condition of the Company and other factors which the Board of Directors deems relevant.

In addition, the Notes, the Bonds, the Line, and other debt agreements contain provisions that, based on certain financial parameters, restrict the ability of the Company to pay additional cash dividends in excess of current quarterly per share amounts.

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

In addition, the Bonds and the Line contain provisions that restrict the ability of the Company to pay cash dividends in excess of two times the current quarterly per share amounts.

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

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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 declined from recent highs, impacting food costs, transportation costs, and labor costs.

Twelve Months Ended

December 2024

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, 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;

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;

pricing pressures and other competitive factors;

8 unchanged sentences

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 for the year ended September 30, 2023, filed by the Company under the Exchange Act, on November 29, 2023 .

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 28, 2024, filed by the Company under the Exchange Act, on December 27, 2024 .

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.

1 unchanged sentence

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