What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-03-04 compared with 2020-12-03 · 66 added, 49 removed, 175 unchanged (40% of the section changed)

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Village Super Market, Inc.

(the “Company” or “Village”) operates a chain of thirty ShopRite supermarkets, five Fairway Markets and three Gourmet Garage specialty markets located in New Jersey, New York, Pennsylvania and Maryland.

(the “Company” or “Village”) operates a chain of twenty-nine ShopRite supermarkets, five Fairway Markets and three Gourmet Garage specialty markets located in New Jersey, New York, Pennsylvania and Maryland.

Village is the second largest member of Wakefern Food Corporation (“Wakefern”), the nation’s largest retailer-owned food cooperative and owner of the ShopRite, Fairway and Gourmet Garage names.

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The Fairway acquisition expands our presence in New York City under an iconic city brand and provides Village the ability to expand centralized food production to support stores under all of our banners.

On February 22, 2021, Village closed the ShopRite store located in Silver Spring, Maryland.

Despite continued investment in marketing and promotional programs, the store was unable to generate sales at a level sufficient to maintain profitability, resulting in its closure.

The impacts associated with this closure will not be material to the consolidated financial statements.

On November 1, 2019, Village opened an 82,000 sq.

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Certain of our stores include the Village Food Garden concept featuring a restaurant style kitchen, and several kiosks offering a wide variety of store prepared specialty foods for both take-home and in-store dining.

Online grocery ordering for in-store pick up or home delivery through ShopRite from Home is available in twenty-six stores.

Customers can browse our circular, create and edit shopping lists and use ShopRite from Home through shoprite.com or the ShopRite app.

Additionally, the ShopRite Order Express app enables customers to pre-order deli, catering, specialty

occasion cakes and other items.

Online grocery ordering for in-store pick up or home delivery through ShopRite from Home is available in twenty-seven stores.

Customers can browse our circular, create and edit shopping lists and use ShopRite from Home through

shoprite.com or the ShopRite app.

Additionally, the ShopRite Order Express app enables customers to pre-order deli, catering, specialty occasion cakes and other items.

Online ordering for home delivery through third party services is available in all Fairway and Gourmet Garage stores.

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Demand remains high in most stores, however sales at Fairway and Gourmet Garage locations in Manhattan have been negatively impacted by localized residential population migration out of the city and less commuter and tourist traffic.

Although the Company estimates that the current trends in sales and profits will continue for the second quarter of fiscal 2021, we expect continued uncertainty in our business as well as the local and regional economies in which we operate depending on the duration and intensity of the COVID-19 pandemic (see the "Outlook" section below for further discussion of risks and uncertainties).

We expect continued uncertainty in our business as well as the local and regional economies in which we operate depending on the duration and intensity of the COVID-19 pandemic (see the "Outlook" section below for further discussion of risks and uncertainties).

Our first priority has and will continue to be the safety of our associates and our customers.

We implemented enhanced sanitation programs, including hourly cleaning of high touch point areas throughout our stores, nightly deep cleaning and biweekly disinfectant fogging in every store, reduced store hours to allow appropriate time for cleaning, limited the number of customers allowed in each store at a time, reduced service department offerings including the sale of bulk self-service merchandise and closure of in-store restaurants and dining areas, a personal protective equipment program, required temperature checks for associates and installation of Plexiglas shields, floor markers and additional signage in high traffic areas to signify six-foot distances to encourage proper social distancing.

We implemented enhanced sanitation programs, including hourly cleaning of high touch point areas throughout our stores, nightly deep cleaning and biweekly disinfectant fogging in every store, reduced store hours to allow appropriate time for cleaning, limited the number of customers allowed in each store at a time, reduced service department offerings including the sale of bulk self-service merchandise and closure of in-store restaurants and dining areas, instituted a personal protective equipment program, required temperature checks for associates and installed Plexiglas shields, floor markers and additional signage in high traffic areas to signify six-foot distances to encourage proper social distancing.

Associate Support .

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Expanded digital capabilities, including expansion of stores offering ShopRite from Home, expanded the ShopRite Order Express app to provide pre-ordering capabilities in the deli and other areas, contactless pickup, prescription drug pickup and delivery, launched partnerships with online grocery picking and delivery services to better support our customers increased demand for these services and expanded mobile scan to an additional 10 stores.

In December 2020, we began administering COVID-19 vaccinations at certain of our retail pharmacies in New Jersey.

RESULTS OF OPERATIONS

The following table sets forth the major components of the Consolidated Statements of Operations as a percentage of sales:

13 Weeks Ended

October 24, 2020 October 26, 2019

13 Weeks Ended 26 Weeks Ended

January 23, 2021 January 25, 2020 January 23, 2021 January 25, 2020

Sales 100.00 % 100.00 % 100.00 % 100.00 %

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Net income 0.87 % 0.46 % 0.78 % 0.55 %

Sales were $490,136 in the 13 weeks ended October 24, 2020, an increase of 20.3% compared to the 13 weeks ended October 26, 2019.

Sales increased due to the Fairway acquisition on May 14, 2020, the opening of the Stroudsburg replacement store on November 1, 2019 and a same store sales increase of 6.6%.

Sales were $522,818 in the 13 weeks ended January 23, 2021, an increase of 19.5% compared to the 13 weeks ended January 25, 2020.

Sales were $1,012,954 in the in the 26 weeks ended January 23, 2021, an increase of 19.9% compared to the 26 weeks ended January 25, 2020.

Sales increased in both the 13 and 26 weeks ended January 23, 2021 due to the Fairway acquisition on May 14, 2020, the opening of the Stroudsburg replacement store on November 1, 2019 and a same store sales increase of 6.5%.

Same store sales increased due primarily to increased customer demand across most stores due to the impact of the COVID-19 pandemic.

We continue to experience higher average basket sizes and decreased transaction counts as customers consolidate shopping trips.

Digital sales growth accelerated through both ShopRite from Home and partnerships with online grocery picking and delivery services, increasing 172% in the 13 weeks ended October 24, 2020 compared to the 13 weeks ended October 26, 2019.

Demand remains high in most stores, however sales at Fairway and Gourmet Garage locations in Manhattan have been significantly negatively impacted due primarily to residential population migration out of the city and less commuter and tourist traffic during the COVID-19 pandemic.

Digital sales growth accelerated through both ShopRite from Home and partnerships with online grocery picking and delivery services, increasing 176% and 174% in the 13 and 26 weeks ended January 23, 2021, respectively, compared to the 13 and 26 weeks ended January 25, 2020.

Demand remains high in most stores, however sales at Fairway and Gourmet Garage locations in Manhattan during the 13 and 26 weeks ended January 23, 2021 have been significantly negatively impacted due primarily to residential population migration out of the city and less commuter and tourist traffic during the COVID-19 pandemic.

New stores and replacement stores are included in same store sales in the quarter after the store has been in operation for four full quarters.

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Gross Profit .

Gross profit as a percentage of sales increased .28% in the 13 weeks ended October 24, 2020 compared to the 13 weeks ended October 26, 2019 due primarily to higher margins associated with Fairway despite higher costs as we transition and integrate the commissary operations into our business.

Excluding the impact of Fairway, gross profit as a percentage of sales decreased .39% due primarily to decreased departmental gross margin percentages (.70%), decreased patronage dividends and rebates received from Wakefern (.10%) and an unfavorable change in product mix (.10%) partially offset by lower promotional spending (.35%) and increased leverage on warehouse assessment charges from Wakefern (.16%).

Departmental gross profits, excluding the impact of Fairway, decreased in the 13 weeks ended October 24, 2020 compared to the 13 weeks ended October 26, 2019 due primarily to price investments resulting from ShopRite's Right Price Promise pricing strategy introduced in October 2019.

Gross profit as a percentage of sales increased .17% in the 13 weeks ended January 23, 2021 compared to the 13 weeks ended January 25, 2020 due primarily to higher margins associated with Fairway despite higher costs as we transition and integrate commissary operations into our business.

Excluding the impact of Fairway, gross profit as a percentage of sales decreased .15% due primarily to decreased departmental gross margin percentages (.15%), an unfavorable change in product mix (.05%) and increased warehouse assessment charges from Wakefern (.36%) partially offset by increased patronage dividends and rebates received from Wakefern (.15%) and lower promotional spending (.26%).

Gross profit as a percentage of sales increased .22% in the 26 weeks ended January 23, 2021 compared to the 26 weeks ended January 25, 2020 due primarily to higher margins associated with Fairway despite higher costs as we transition and integrate commissary operations into our business.

Excluding the impact of Fairway, gross profit as a percentage of sales decreased .30% due primarily to decreased departmental gross margin percentages (.50%), increased warehouse assessment charges from Wakefern (.10%) and an unfavorable change in product mix (.04%) partially offset by lower promotional spending (.31%) and increased patronage dividends and rebates received from Wakefern (.03%).

Departmental gross profits, excluding the impact of Fairway, decreased in the 13 and 26 weeks ended January 23, 2021 compared to the 13 and 26 weeks ended January 25, 2020 due primarily to continued price investments resulting from

ShopRite's Right Price Promise pricing strategy introduced in October 2019.

Both product mix and departmental gross margin percentages were also impacted by limitations in service departments and product availability as a result of the COVID-19 pandemic.

Operating and Administrative Expense.

Operating and administrative expense as a percentage of sales increased .05% in the 13 weeks ended October 24, 2020 compared to the 13 weeks ended October 26, 2019.

The 13 weeks ended October 26, 2019 included pre-opening costs of the Stroudsburg, Pennsylvania replacement store (.21%) and store closure costs and charges to write off the lease asset and related obligations for the old Stroudsburg store (.07%).

Excluding these items, operating and administrative expense as a percentage of sales increased .33% in the 13 weeks ended October 24, 2020 compared to the 13 weeks ended October 26, 2019 due primarily to incremental costs related to COVID-19, including enhanced wages and benefits and expanded safety and sanitation protocols (.24%), increased occupancy costs due primarily to the acquisitions of Fairway (.79%), increased costs associated with digital sales (.40%) partially offset by decreased payroll (.75%) and workers' compensation and other fringe benefits (.25%).

Payroll decreased primarily due to leverage from higher sales and reductions in service department offerings partially offset by the addition of Fairway and growth of ShopRite from Home.

Operating and administrative expense as a percentage of sales decreased .44% in the 13 weeks ended January 23, 2021 compared to the 13 weeks ended January 25, 2020.

The 13 weeks ended January 25, 2020 includes a non-cash pension charge related to the termination of a company-sponsored pension plan and other pension settlement charges (.28%) (see note 4 to the consolidated financial statements), pre-opening costs of the Stroudsburg, Pennsylvania replacement store (.10%), store closure costs and charges to write off the variable lease obligations of the old Stroudsburg store (.12%).

Excluding these items, operating and administrative expense as a percentage of sales increased .06% in the 13 weeks ended January 23, 2021 compared to the 13 weeks ended January 25, 2020 due primarily to increased occupancy costs as a result of the Fairway acquisition (.63%), increased external costs associated with digital sales (.45%) and incremental costs related to COVID-19, including enhanced wages and benefits and expanded safety and sanitation protocols, (.07%) partially offset by decreased payroll (.61%), other fringe benefits (.25%), maintenance costs (.12%) and legal and consulting fees (.07%).

Payroll, other fringe benefits and maintenance costs decreased primarily due to leverage from higher sales and reductions in service department offerings partially offset by the addition of Fairway and growth of ShopRite from Home.

Operating and administrative expense as a percentage of sales decreased .20% in the 26 weeks ended January 23, 2021 compared to the 26 weeks ended January 25, 2020.

The 26 weeks ended January 25, 2020 includes a non-cash pension charge related to the termination of a company-sponsored pension plan and other pension settlement charges (.15%) (see note 4 to the consolidated financial statements), pre-opening costs of the Stroudsburg, Pennsylvania replacement store (.15%), store closure costs and charges to write off the variable lease obligations of the old Stroudsburg store (.09%).

Excluding these items, operating and administrative expense as a percentage of sales increased .19% in the 26 weeks ended January 23, 2021 compared to the 26 weeks ended January 25, 2020 due primarily to increased occupancy costs due primarily to the Fairway acquisition (.70%), increased external costs associated with digital sales (.42%) and incremental costs related to COVID-19, including enhanced wages and benefits and expanded safety and sanitation protocols, (.15%) partially offset by decreased payroll (.59%), other fringe benefits (.30%) and maintenance costs (.09%).

Depreciation and Amortization .

Depreciation and amortization expense increased in the 13 weeks ended October 24, 2020 compared to the 13 weeks ended October 26, 2019 due to depreciation related to the Fairway acquisition and the Stroudsburg replacement store.

Depreciation and amortization expense increased in the 13 and 26 weeks ended January 23, 2021 compared to the 13 and 26 weeks ended January 25, 2020 due primarily to depreciation related to the Fairway acquisition.

Interest Expense .

Interest expense increased in the 13 weeks ended October 24, 2020 compared to the 13 weeks ended October 26, 2019 due primarily to interest expense related to the credit agreement entered into on May 6, 2020 (see note 7 to the consolidated financial statements).

Interest expense increased in the 13 and 26 weeks ended January 23, 2021 compared to the 13 and 26 weeks ended January 25, 2020 due primarily to interest expense related to the credit agreement entered into on May 6, 2020 (see note 7 to the consolidated financial statements).

Interest Income .

Interest income decreased in the 13 weeks ended October 24, 2020 compared to the 13 weeks ended October 26, 2019 due primarily to lower interest rates for amounts invested in variable rate notes receivable from Wakefern and demand deposits invested at Wakefern.

Interest income decreased in the 13 and 26 weeks ended January 23, 2021 compared to the 13 and 26 weeks ended January 25, 2020 due primarily to lower interest rates for amounts invested in variable rate notes receivable from Wakefern and demand deposits invested at Wakefern.

Income Taxes.

The effective income tax rate was 29.9% in the 13 weeks ended October 24, 2020 compared to 29.9% in the 13 weeks ended October 26, 2019.

Net income was $3,360 in the 13 weeks ended October 24, 2020 compared to $2,567 in the 13 weeks ended October 26, 2019.

The 13 weeks ended October 26, 2019 included pre-opening costs of the Stroudsburg, Pennsylvania replacement store of $594 (net of tax) and store closure costs and charges to write off the lease asset and related obligations for the old Stroudsburg store of $191 (net of tax).

Excluding these items, net income was flat in the 13 weeks ended October 24, 2020 compared to the prior year.

Net income was flat despite the increase in same store sales due to the impact of lower sales volumes in Manhattan, higher costs as we transition and integrate commissary operations into our business and increased operating and administrative expenses.

The effective income tax rate was 29.9% in both the 13 and 26 weeks ended January 23, 2021, compared to 30.3% and 30.0% in the 13 and 26 weeks ended January 25, 2020, respectively.

Net income was $4,555 in the 13 weeks ended January 23, 2021 compared to $2,005 in the 13 weeks ended January 25, 2020.

The 13 weeks ended January 25, 2020 includes a non-cash pension charge related to the termination of a company-sponsored pension plan and other pension settlement charges of $871 (net of tax), pre-opening costs related to the

Stroudsburg, Pennsylvania replacement store of $304 (net of tax) and store closure costs and charges to write off the variable lease obligations related to the old Stroudsburg store of $365 (net of tax).

Excluding these items, net income increased 28% in the 13 weeks ended January 23, 2021 compared to the prior year.

Net income increased due to increased same store sales partially offset by lower sales volumes in Manhattan and higher costs as we transition and integrate commissary operations into our business.

Net income was $7,916 in the 26 weeks ended January 23, 2021 compared to $4,572 in the 26 weeks ended January 25, 2020.

The 26 weeks ended January 25, 2020 includes a non-cash pension charge related to the termination of a company-sponsored pension plan and other pension settlement charges of $871 (net of tax), pre-opening costs related to the Stroudsburg, Pennsylvania replacement store of $891 (net of tax) and store closure costs and charges to write off the lease asset

and related obligations for the old Stroudsburg store of $557 (net of tax).

Excluding these items, net income increased 15% in the 26 weeks ended January 23, 2021 compared to the prior year.

Net income increased due to increased same store sales partially offset by lower sales volumes in Manhattan and higher costs as we transition and integrate commissary operations into our business.

CRITICAL ACCOUNTING POLICIES

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The Company’s critical accounting policies relating to the impairment of long-lived assets and goodwill, accounting for patronage dividends earned as a stockholder of Wakefern and accounting for pension plans, are described in the Company’s Annual Report on Form 10-K for the year ended July 25, 2020.

A s of October 24, 2020, there have been no changes to the critical accounting policies contained therein.

A s of January 23, 2021, there have been no changes to the critical accounting policies contained therein.

The preparation of financial statements in conformity with U.S.

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LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was $3,353 in the 13 weeks ended October 24, 2020 compared to net cash provided by operating activities of $3,375 in the corresponding period of the prior year.

The change in cash flows from operating activities in fiscal 2021 was primarily due to changes in working capital.

Working capital changes, including Other assets and liabilities, decreased cash flows from operating activities by $15,530 in fiscal 2021 compared to a decrease of $8,733 in fiscal 2020.

The change in impact of working capital is due primarily to higher merchandise inventories and a larger decrease in accounts payable to Wakefern as stock levels and inventory turnover normalized through the pandemic.

During the 13 weeks ended October 24, 2020, Village used cash to fund capital expenditures of $3,301, dividends of $3,257 and additional investments of $567 in notes receivable from Wakefern.

Capital expenditures primarily include costs associated with the integration of Fairway stores, continued expansion of self checkout and equipment purchases.

Village has budgeted $35,000 for capital expenditures in fiscal 2021.

Planned expenditures include two major remodels, several smaller store remodels, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.

The Company’s primary sources of liquidity in fiscal 2021 are expected to be cash and cash equivalents on hand at October 24, 2020 and operating cash flow generated in fiscal 2021.

At October 24, 2020, the Company held variable rate notes receivable due from Wakefern of $26,426 that earn interest at the prime rate plus 1.25% and mature on August 15, 2022 and $27,149 that earn interest at the prime rate plus .75% and mature on February 15, 2024.

Net cash provided by operating activities was $24,911 in the 26 weeks ended January 23, 2021 compared to $27,761 in the corresponding period of the prior year.

The change in cash flows from operating activities in fiscal 2021 was primarily due to changes in working capital partially offset by increased net income.

Working capital changes, including Other assets and liabilities, decreased cash flows from operating activities by $939 in fiscal 2021 compared to an increase of $5,456 in fiscal 2020.

The change in impact of working capital is due primarily to higher merchandise inventories and a decrease in accounts payable to Wakefern as stock levels and inventory turnover normalized in the first half of fiscal 2021 following the COVID outbreak.

During the 26 weeks ended January 23, 2021, Village used cash to fund capital expenditures of $9,958, dividends of $6,523, principal payment of long-term debt of $4,091 and additional investments of $1,141 in notes receivable from Wakefern.

Capital expenditures primarily include costs associated with the integration of Fairway stores, completion of one major remodel, continued expansion of self checkout and equipment purchases.

Village has revised its budgeted capital expenditures lower than previously estimated to $25,000 in fiscal 2021 due primarily to shifts in timing of planned store remodels.

Planned expenditures include several smaller store remodels, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.

The Company’s primary sources of liquidity in fiscal 2021 are expected to be cash and cash equivalents on hand at January 23, 2021 and operating cash flow generated in fiscal 2021.

At January 23, 2021, the Company held variable rate notes receivable due from Wakefern of $26,726 that earn interest at the prime rate plus 1.25% and mature on August 15, 2022 and $27,423 that earn interest at the prime rate plus .75% and mature on February 15, 2024.

Wakefern has the right to prepay these notes at any time.

Under certain conditions, the Company can require Wakefern to prepay the notes, although interest earned since inception would be reduced as if it was earned based on overnight money market rates as paid by Wakefern on demand deposits.

Working capital was $38,583 at October 24, 2020 compared to $34,522 at July 25, 2020.

Working capital was $38,202 at January 23, 2021 compared to $34,522 at July 25, 2020.

Working capital ratios at the same dates were 1.24 and 1.21 to one, respectively.

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On May 6, 2020, Village entered into a credit agreement (the “Credit Facility”) with Wells Fargo National Bank, National Association (“Wells Fargo”) that supersedes in its entirety the prior credit agreement with Wells Fargo dated November 9, 2017.

The principal purpose of the Credit Facility is to finance general corporate and working capital requirements and Village’s acquisition of certain Fairway assets.

The principal purpose of the Credit Facility is to finance general corporate and working capital

requirements and Village’s acquisition of certain Fairway assets.

Among other things, the Credit Facility provides for a maximum loan amount of $150,500 as further set forth below:

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Additionally, Village executed an interest rate swap for a notional amount equal to the term loan amount that fixes the base LIBOR rate at .41% per annum through May 4, 2027, resulting in a fixed effective interest rate of 1.76% on the term note.

• The ability to convert up to $50,000 of the revolving line of credit to a secured converted term loan, which shall reduce the maximum amount available for borrowing under the revolving line of credit.

• On September 1, 2020, Village converted $50,000 of its revolving line of credit to a secured converted term loan.

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and its subsidiaries, including the sites of three Village stores.

The Credit Facility also provides for up to $25,000 of letters of credit ($7,336 outstanding at October 24, 2020), which secure obligations for store leases and construction performance guarantees to municipalities.

The Credit Facility also provides for up to $25,000 of letters of credit ($7,336 outstanding at January 23, 2021), which secure obligations for store leases and construction performance guarantees to municipalities.

The Credit Facility contains covenants that, among other conditions, require a minimum tangible net worth, a minimum fixed charge coverage ratio and a maximum adjusted debt to EBITDAR ratio.

The Company was in compliance with all covenants of the credit agreement at October 24, 2020.

There have been no other substantial changes as of October 24, 2020 to the contractual obligations and commitments discussed in the Company’s Annual Report on Form 10-K for the year ended July 25, 2020.

The Company was in compliance with all covenants of the credit agreement at January 23, 2021.

There have been no other substantial changes as of January 23, 2021 to the contractual obligations and commitments discussed in the Company’s Annual Report on Form 10-K for the year ended July 25, 2020.

This Form 10-Q contains certain forward-looking statements about Village’s future performance.

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and are indicated by words such as “will,” “expect,” “should,” “intend,” “anticipates,” “believes” and similar words or phrases.

The Company cautions the reader that there is no assurance that actual results or business conditions will not differ materially from the results expressed, suggested or implied by such forward-

looking statements.

The Company cautions the reader that there is no assurance that actual results or business conditions will not differ materially from the results expressed, suggested or implied by such forward-looking statements.

The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof.

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• Excluding the impact of acquired stores, we expect decreased gross profit margins due to continued investments in retail pricing through the Right Price Promise commitment to everyday low pricing on the items customers purchase most frequently that was introduced in October 2019.

• We have budgeted $35,000 for capital expenditures in fiscal 2021.

• We revised our budgeted capital expenditures lower than previously estimated to $25,000 in fiscal 2021 due primarily to shifts in timing of planned store remodels.

Planned expenditures include several smaller store remodels, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.

• The Board’s current intention is to continue to pay quarterly dividends in 2021 at the most recent rate of $.25 per Class A and $.1625 per Class B share.

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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