What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-11-26 compared with 2024-12-27 · 50 added, 53 removed, 183 unchanged (36% of the section changed)

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

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

Ingles is a leading supermarket chain in the Southeast United States and operates a total of 194 supermarkets in North Carolina (72), Georgia (64), South Carolina (35), Tennessee (21), Virginia (1) and Alabama (1), excluding three stores that remain temporarily closed due to damage sustained during Hurricane Helene.

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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Recent Developments

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

The storm caused damage to certain of the Company’s properties and temporarily impacted the ability of the Company’s stores to report information to the Company’s headquarters.

The distribution center sustained damage but returned to full operation within two weeks following the storm.

During the first two weeks immediately following the storm, the Company’s headquarters experienced communication loss and some stores remained without power and communication.

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

One store has now reopened and the Company expects the remaining three stores will reopen in 2025.

Among other impacts from the storm, the Company sustained approximately $30.4 million in lost inventory, of which approximately $10 million is expected to be covered by insurance.

Real property and equipment damage was approximately $4.5 million.

Real property and equipment repair expenses at the distribution center, including anticipated future expenses, of approximately $1.5 million were insured.

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.

The Company received insurance proceeds of $4.7 million for the year ended September 27, 2025 as a partial payment for inventory loss, and the Company continues to work with its insurance carriers to reach final determinations with respect to its inventory loss claims.

Additionally, the Company recognized a property and equipment impairment loss of $4.5 million for the year ended September 28, 2024 pertaining to Hurricane Helene, for which the Company received insurance proceeds of $1.5 million for the year ended September 27, 2025.

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.

Four stores sustained damage that required that they be temporarily closed, of which, as of the date of this Annual Report on Form 10-K, three remain closed and are currently expected to reopen at various times during 2026 or in 2027.

In addition, for the year ended September 27, 2025, the Company incurred approximately $9.0 million in cleanup and repair costs as a result of Hurricane Helene.

Critical Accounting Policies and Estimates

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however, liability coverage is maintained.

The Company’s self-insurance reserves totaled $35.9 million and $32.9 million for employee group insurance, workers’ compensation insurance and general liability insurance at September 28, 2024 and September 30, 2023, respectively.

These amounts were inclusive of expected

recoveries from excess cost insurance or other sources that are recorded as receivables of $4.1 million at September 28, 2024 and $4.3 million at September 30, 2023.

The Company’s

self-insurance reserves totaled $38.3 million and $35.9 million for employee group insurance, workers’ compensation insurance and general liability insurance at September 27, 2025, and September 28, 2024, respectively.

These amounts were inclusive of expected recoveries from excess cost insurance or other sources that are recorded as receivables of $3.3 million at September 27, 2025 and $4.1 million at September 28, 2024.

Asset Impairments

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These estimates can fluctuate significantly due to changes in real estate market conditions, the economic environment, capital spending decisions and inflation.

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

For the year ended September 28, 2024, the Company recognized a property and equipment impairment loss of $4.5 million pertaining to Hurricane Helene.

The Company monitors the carrying value of long-lived assets for potential impairment each quarter based on whether any indicators of impairment have occurred and determined that no impairments existed as of September 27, 2025.

Vendor Allowances

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

Comparable store sales for the fiscal year ended September 27, 2025 included 194 stores, which excluded three stores temporarily closed due to damage from Hurricane Helene.

Hurricane Helene severely impacted western North Carolina at the end of September 2024, and 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.

Comparable store sales for the fiscal years ended September 28, 2024 and September 30, 2023, included 198 stores.

Since the impacts

of Hurricane Helene occurred during the last two days of the fiscal year ended September 28, 2024, comparable store sales included all 198 stores.

Because the impacts of Hurricane Helene occurred during the last two days of the fiscal year ended September 28, 2024, comparable store sales included all 198 stores.

During the last two days of the fiscal year ended September 28, 2024, Hurricane Helene caused power outages at approximately 80 stores, some of which were without power for only several hours, and others were without power for up to 13 days.

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Net income for the fiscal year ended September 27, 2025 was $83.6 million, compared with net income of $105.5 million for the fiscal year ended September 28, 2024.

Comparisons of fiscal year 2024 to fiscal year 2023 are affected by the difference in the number of weeks in each year.

Fiscal year 2024 had 52 weeks and fiscal year 2023 had 53 weeks.

Results for fiscal year 2025 as compared to fiscal year 2024 were affected by the impact of Hurricane Helene.

For the fiscal year ended September 27, 2025, the Company incurred $9.0 million of cleanup and repair expenses, which were partially offset by insurance proceeds of $1.5 million.

The Company also received insurance proceeds of $4.7 million related to inventory losses, which were recorded as a reduction of cost of goods sold.

The Company has estimated that approximately $55 to $65 million of lost revenue due to the temporarily closed stores and electronic payment disruptions experienced during the three weeks after the storm, most of which was during fiscal year 2025.

For the fiscal year ended September 28, 2024, the Company recognized an impairment loss of $30.4 million related to inventory damaged or destroyed by Hurricane Helene and a property and equipment loss of $4.5 million.

Net income as a percentage of sales was 1.6% for fiscal year 2025 compared with 1.9% for fiscal year 2024.

Inflation in the cost of goods and increases in operating expenses due to increased labor market competition contributed to this decrease.

Net sales for the fiscal year ended September 27, 2025, totaled $5.33 billion, compared with $5.64 billion for the fiscal year ended September 28, 2024.

In addition to the stores closed due to damage and power outages caused by Hurricane Helene, the Company’s headquarters lost connectivity to the internet which disrupted the Company’s ability to accept credit and debit cards.

Excluding fuel sales, total grocery comparable store sales decreased 1.7% over the comparative twelve-month period.

As described above under “Comparable Store Sales”, the Company estimates that it lost approximately $14.0 million in sales for the last two days of the fiscal year ended September 28, 2024 due to the disruptions caused by Hurricane Helene.

Store closures and power outages as a result of Hurricane Helene will have an impact on net sales for the first quarter and full fiscal year of 2025.

In addition, the lack of water and subsequent ban on water usage, will have an impact on the fluid dairy operations for the first quarter of fiscal year 2025.

Management analyzes comparable stores sales for the 52 weeks of fiscal year 2024 with the corresponding 52 calendar weeks of the 53 week fiscal year 2023.

Management analyzes comparable stores sales for the 52 weeks of fiscal year 2025 with the corresponding 52 weeks of fiscal year 2024.

On this basis, retail grocery comparable store sales excluding fuel decreased 1.7% for fiscal year 2025 compared to fiscal year 2024.

The number of transactions (excluding fuel) decreased 0.3% while the average transaction size (excluding fuel) decreased by 1.4%.

The number of transactions (excluding fuel) decreased 4.2% while the average transaction size (excluding fuel) increased by 0.1%.

Comparing fiscal year 2025 with 2024, fuel gallons sold decreased 5.4% and per gallon fuel prices decreased 9.4%.

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Comparable store sales decrease

Effect of 53rd week in fiscal year 2023

Lost sales from temporarily closed stores

Lost sales from closed store

Total retail grocery sales for the fiscal year ended September 27, 2025

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As a percentage of sales, gross profit totaled 23.9% for the fiscal year ended September 27, 2025 as compared to 23.0% for the fiscal year ended September 28, 2024.

The decrease in gross profit resulted primarily from the $30.4 million in inventory loss due to Hurricane Helene.

Retail grocery gross profit as a percentage of total sales (excluding fuel) decreased 0.9 basis points in fiscal year 2024, compared with fiscal year 2023.

The gross margin decrease was primarily due to the inventory impairment loss of $30.4 million as a result of Hurricane Helene.

The decrease in gross profit resulted primarily from the lost revenue from the temporarily closed stores and the electronic payment disruptions due to Hurricane Helene partially offset by insurance proceeds of $4.7 million.

Retail grocery gross profit as a percentage of total sales (excluding fuel) increased 0.8 basis points in fiscal year 2025, compared with fiscal year 2024.

Operating and Administrative Expenses.

Operating and administrative expenses increased $46.4 million, or 4.2%, to $1.2 billion for the fiscal year ended September 28, 2024 from $1.1 billion for the fiscal year ended September 30, 2023.

Operating and administrative expenses decreased $2.9 million, or 0.3%, to $1.159 billion for the fiscal year ended September 27, 2025 from $1.162 billion for the fiscal year ended September 28, 2024.

As a percentage of sales, operating and administrative expenses were 21.7% and 20.6% for fiscal years 2025 and 2024, respectively.

Excluding fuel, which does not have significant direct operating expenses, the ratio of operating expenses to sales was 24.4% for fiscal year 2025 compared with 23.4% for fiscal year 2024.

Included in the operating expenses is the asset impairment write off of $4.5 million, due to Hurricane Helene.

The costs of clean up and repairs will impact operating and administrative expenses for the first quarter and full fiscal year of 2025.

A breakdown of the primary increases in operating and administrative expenses is as follows.

The costs of clean up and repairs incurred in fiscal year 2025 as a result of Hurricane Helene were $9.0 million, which were partially offset by insurance proceeds of $1.5 million.

Included in the operating expenses for fiscal year 2024 was the asset impairment write off of $4.5 million due to Hurricane Helene.

A breakdown of the primary changes in operating and administrative expenses is as follows.

(in millions)

Salaries and wages

Taxes and licenses

Repairs and maintenance

Professional fees

Miscellaneous

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

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.

Taxes and licenses expenses increases were noted in both payroll taxes and in property taxes.

Miscellaneous expense increased due to the asset impairment loss of $4.5 million as a result of Hurricane Helene.

Salaries and wages decreased 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 damage caused by Hurricane Helene.

Repairs and maintenance expense increased as a result of the cleanup and repair costs incurred as a result of Hurricane Helene.

Professional fees increased 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.

Miscellaneous expenses decreased primarily related to insurance proceeds of $1.5 million received in fiscal year 2025 and the $4.2 million impairment loss recorded in fiscal year 2024.

Gain from Sale or Disposal of Assets.

Gains on sale or disposal of assets totaled $2.4 million for fiscal year 2025 and $9.1 million for fiscal year 2024.

The increase was primarily related to the swap of shopping center properties that occurred in January 2024.

The decrease was primarily related to the swap of shopping center properties that occurred in January 2024.

Other Income, Net.

Other income, net totaled $12.1 million and $14.2 million for the fiscal years ended September 27, 2025 and September 28, 2024, respectively.

Other income consists primarily of interest earned, which increased for the 2024 fiscal year due to a combination of higher deposits in interest bearing accounts and higher rates of interest earned on the Company’s cash balances.

Other income consisted primarily of interest earned, which decreased for the 2025 fiscal year due to a combination of lower deposits in interest bearing accounts and lower rates of interest earned on the Company’s cash balances.

Interest Expense.

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Fiscal Year Ended September 28, 2024 Compared to the Fiscal Year Ended September 30, 2023

Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Ingles Annual Report on Form 10-K for the year ended September 30, 2023, filed with the SEC on November 29, 2023, for a discussion of the year ended September 30, 2023 as compared to September 24, 2022.

Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Ingles Annual Report on Form 10-K for the year ended September 28, 2024, filed with the SEC on December 27, 2024, for a discussion of the year ended September 28, 2024 as compared to September 30, 2023.

Liquidity and Capital Resources

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

Capital expenditures totaled $210.9 million and $173.6 million for fiscal years 2024 and 2023, respectively, with the increase driven primarily by the purchase of new sites and land parcels.

Major capital expenditures included the following:

Store sites/land parcels purchased

New fuel stations added

Capital expenditures totaled $114.5 million and $210.9 million for fiscal years 2025 and 2024, respectively, with the decrease driven primarily by more purchases of new sites and land parcels during fiscal year 2024 as compared to fiscal year 2025.

Capital expenditures included predominately the purchase of store sites and land parcels totaling 9 and 16, respectively, for fiscal years 2025 and 2024.

Capital expenditures include upgrading and replacing store equipment, technology investments, those related to the Company’s distribution operation and its milk processing plant, and expenditures for stores to open in subsequent fiscal years.

Ingles’ capital expenditure plans for fiscal year 2026 include investments of approximately $120 to $140 million.

The Company currently plans to dedicate the majority of its fiscal 2025 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 plans to dedicate the majority of its fiscal 2026 capital expenditures to continued improvement of its store base, including the reopening of its temporarily closed stores, 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 net annual capital expenditures will be in the range of approximately $120 to $140 million going forward in order to maintain a modern store base.

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Construction commitments at September 27, 2025 totaled $4.9 million.

The Company generated $262.5 million of cash from operations in fiscal 2024 compared with $266.4 million for fiscal year 2023.

The Company generated $154.1 million of cash from operations for fiscal 2025 compared with $262.5 million for fiscal year 2024.

The decrease was primarily due to the decrease in net income, increased receivables for electronic payments and the replenishment of inventory following Hurricane Helene.

Cash used by investing activities for fiscal year 2025 totaled $109.9 million compared with $206.2 million for fiscal year 2024.

The increase in cash used in investing activities was primarily due to capital expenditures, which increased by $37.3 in fiscal year 2024 as compared to fiscal year 2023.

The decrease in cash used in investing activities was primarily due to capital expenditures, which decreased by $96.4 million in fiscal year 2025 as compared to fiscal year 2024.

The Company’s cash used by net financing activities totaled $31.6 million and $31.2 million for fiscal years 2025 and 2024, respectively.

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In June 2021, the Company issued at par $350.0 million aggregate principal amount of 4.00% senior notes due 2031 (the “Notes”).

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

The Company has a $150.0 million unsecured senior line of credit (the “Line”) that, as amended in June 2025, matures in June 2030.

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 September 28, 2024.

The Line allows the Company to issue up to $10.0 million in letters of credit, of which one in the amount of $500,000 was issued at September 27, 2025.

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

At September 28, 2024, the Company had no borrowings outstanding under the Line.

At September 27, 2025, the Company had no other borrowings outstanding under the Line.

In December 2010, the Company completed the funding of $99.7 million of Recovery Zone Facility 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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As of September 27, 2025, the Company was in compliance with these covenants.

Under the most restrictive of these covenants, the Company would have been permitted to incur approximately $945.5 million of additional borrowings (including borrowings under the Line) as of September 28, 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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The Company believes that the following trends are likely to continue for at least the next fiscal year:

 The impact of Hurricane Helene due to physical damage to stores, water outage and ban and connectivity issues, will impact the 2025 first quarter and fiscal year 2025 results.

 Impacts of Hurricane Helene , including the costs to repair and reopen our temporarily closed stores, will impact fiscal year 2026 results.

 The supermarket industry will remain highly competitive and will be characterized by industry consolidation, fragmented food retail platforms, and continued competition from super centers and other non-supermarket operators.

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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-K

Item 7. Management’s Discussion and Analysis