What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-03-10 compared with 2021-12-08 · 61 added, 46 removed, 144 unchanged (43% of the section changed)

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(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.

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 Market and Gourmet Garage names.

As further described in the Company’s Form 10-K, this ownership interest in Wakefern provides Village with many of the economies of scale in purchasing, distribution, advanced retail technology, marketing and advertising associated with chains of greater size and geographic coverage.

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The ShopRite Price Plus preferred customer program enables Village to offer continuity programs, focus on target marketing initiatives and to offer discounts and attach digital coupons directly to a customer's Price Plus card.

The Company’s stores, six of which are owned, average 55,000 total square feet.

The Company’s stores, seven of which are owned, average 55,000 total square feet.

These larger store sizes enable the Company’s stores to provide a “one-stop” shopping experience and to feature expanded higher margin specialty departments such as an onsite bakery, an expanded delicatessen, a variety of natural and organic foods, ethnic and international foods, prepared foods and pharmacies.

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

13 Weeks Ended

October 30, 2021 October 24, 2020

13 Weeks Ended 26 Weeks Ended

January 29, 2022 January 23, 2021 January 29, 2022 January 23, 2021

Sales 100.00 % 100.00 % 100.00 % 100.00 %

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Net income 1.90 % 0.87 % 1.69 % 0.78 %

Sales were $494,211 in the 13 weeks ended October 30, 2021, an increase of 0.8% compared to the 13 weeks ended October 24, 2020.

Sales increased due to an increase in same store sales of 2.3% partially offset by the closure of the Silver Spring, Maryland store.

On a two-year stacked basis, same store sales increased 9.1% in the 13 weeks ended October 30, 2021.

Same store digital sales were flat the 13 weeks ended October 30, 2021 compared to 13 weeks ended October 24, 2020, but increased 153% on a two-year stacked basis.

Food inflation and increased Supplemental Nutrition Assistance Program ("SNAP") benefits continue to positively impact sales.

Increased transaction counts were partially offset by decreased basket sizes as we cycled against the initial months following the COVID-19 outbreak in our trade area.

Sales were $537,408 in the 13 weeks ended January 29, 2022, an increase of 2.8% compared to the 13 weeks ended January 23, 2021.

Sales increased due to an increase in same store sales of 4.4% partially offset by the closure of the Silver Spring, Maryland store in February 2021.

Same store sales increased due primarily to increased sales in New York City stores, retail price inflation and continued growth in Supplemental Nutrition Assistance Program ("SNAP") benefit redemptions.

Increases in transaction counts were partially offset by decreased basket sizes and same store digital sales were flat as we cycled against the initial months following the COVID-19 outbreak in our trade area.

Sales were $1,031,619 in the 26 weeks ended January 29, 2022, an increase of 1.8% compared to the 26 weeks ended January 23, 2021.

Sales increased due to an increase in same store sales of 3.4% partially offset by the closure of the Silver Spring, Maryland store in February 2021.

Same store sales increased due primarily to increased sales in New York City stores, retail price inflation and continued growth in SNAP benefit redemptions.

On a two-year stacked basis, same store sales increased 10.9% and 10.0% in the 13 and 26 weeks ended January 29, 2022, respectively.

Same store digital sales increased 154% on a two-year stacked basis for both the 13 and 26 weeks ended January 29, 2022.

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 .21% in the 13 weeks ended October 30, 2021 compared to the 13 weeks ended October 24, 2020 due primarily to increased departmental gross margin percentages (.68%), a favorable change in product mix (.08%) and lower promotional spending (.03%) partially offset by increased warehouse assessment charges from Wakefern (.57%).

Gross profit as a percentage of sales increased .71% in the 13 weeks ended January 29, 2022 compared to the 13 weeks ended January 23, 2021 due primarily to increased departmental gross margin percentages (.63%), a favorable change in product mix (.12%) and decreased warehouse assessment charges from Wakefern (.20%), partially offset by decreased patronage dividends and rebates received from Wakefern (.24%).

Department gross margins increased due primarily to pricing initiatives and improvements in commissary operations.

Gross profit as a percentage of sales increased .47% in the 26 weeks ended January 29, 2022 compared to the 26 weeks ended January 23, 2021 due primarily to increased departmental gross margin percentages (.66%) and a favorable change in product mix (.10%), partially offset by increased warehouse assessment charges from Wakefern (.17%) and decreased patronage dividends and rebates received from Wakefern (.12%).

Department gross margins increased due primarily to pricing initiatives and improvements in commissary operations.

Operating and Administrative Expense.

Operating and administrative expense as a percentage of sales decreased .83% in the 13 weeks ended October 30, 2021 compared to the 13 weeks ended October 24, 2020 due primarily to lower payroll costs (.89%) and less advertising spending (.11%) partially offset by increased external fees and transportation costs associated with digital sales (.16%).

Payroll costs decreased due to productivity initiatives and labor shortages despite minimum wage and demand driven pay rate increases.

Operating and administrative expense as a percentage of sales decreased .65% in the 13 weeks ended January 29, 2022 compared to the 13 weeks ended January 23, 2021 due primarily to lower labor costs and fringe benefits (.70%) and less advertising spending (.12%), partially offset by higher maintenance and repair costs (0.10%)

and increased external fees and transportation costs associated with digital sales (.07%).

Labor costs decreased due to productivity initiatives, labor shortages and sales leverage partially offset by minimum wage and demand driven pay rate increases.

Operating and administrative expense as a percentage of sales decreased .74% in the 26 weeks ended January 29, 2022 compared to the 26 weeks ended January 23, 2021 due primarily to lower labor costs and fringe benefits (.77%) and less advertising spending (.12%), partially offset by increased external fees and transportation costs associated with digital sales (.11%).

Labor costs decreased due to productivity initiatives, labor shortages and sales leverage partially offset by minimum wage and demand driven pay rate increases.

Depreciation and Amortization .

Depreciation and amortization expense decreased in the 13 weeks ended October 30, 2021 compared to the 13 weeks ended October 24, 2020 due primarily to closure of the Silver Spring, Maryland ShopRite in February 2020.

Depreciation and amortization expense decreased in both the 13 and 26 weeks ended January 29, 2022 compared to the 13 and 26 weeks ended January 23, 2021 due primarily to closure of the Silver Spring, Maryland ShopRite in February 2021.

Interest Expense .

Interest expense in the 13 weeks ended October 30, 2021 was flat compared to the 13 weeks ended October 24, 2020.

Interest expense decreased in both the 13 and 26 weeks ended January 29, 2022 compared to the 13 and 26 weeks ended January 23, 2021 due to lower average outstanding borrowings.

Interest Income .

Interest income increased in the 13 weeks ended October 30, 2021 compared to the 13 weeks ended October 24, 2020 due primarily to larger amounts invested in variable rate notes receivable from Wakefern and demand deposits invested at Wakefern.

Interest income increased in both the 13 and 26 weeks ended January 29, 2022 compared to the 13 and 26 weeks ended January 23, 2021 due primarily to larger amounts invested in variable rate notes receivable from Wakefern and demand deposits invested at Wakefern.

Income Taxes.

The effective income tax rate was 30.7% in the 13 weeks ended October 30, 2021 compared to 29.9% in the 13 weeks ended October 24, 2020.

The effective income tax rate was 30.7% in the both the 13 and 26 weeks ended January 29, 2022 compared to 29.9% in the 13 and 26 weeks ended January 23, 2021.

The increase in the effective income tax rate is due primarily to greater apportionment in higher state tax rate jurisdictions.

Net income was $7,328 in the 13 weeks ended October 30, 2021 compared to $3,360 in the 13 weeks ended October 24, 2020 due primarily to the 2.3% increase in same store sales, higher gross profit margins and lower payroll costs.

Net income was $10,129 in the 13 weeks ended January 29, 2022 compared to $4,555 in the 13 weeks ended January 23, 2021 due primarily to the 4.4% increase in same store sales, higher gross profit margins and lower payroll costs.

Net income was $17,457 in the 26 weeks ended January 29, 2022 compared to $7,916 in the 26 weeks ended January 23, 2021 due primarily to the 3.4% increase in same store sales, higher gross profit margins and lower payroll costs.

CRITICAL ACCOUNTING POLICIES

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The Company’s critical accounting policies relating to the impairment of long-lived assets, goodwill and indefinite-lived intangible assets, 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 31, 2021.

A s of October 30, 2021, there have been no changes to the critical accounting policies contained therein.

A s of January 29, 2022, 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 provided by operating activities was $7,887 in the 13 weeks ended October 30, 2021 compared to net cash used in operating activities of $3,353 in the corresponding period of the prior year.

Net cash provided by operating activities was $40,274 in the 26 weeks ended January 29, 2022 compared to $24,911 in the corresponding period of the prior year.

The change in cash flows from operating activities in fiscal 2022 was primarily due to changes in working capital and higher net income.

Working capital changes, including Other assets and liabilities, decreased cash flows from operating activities by $8,281 in fiscal 2022 compared to a decrease of $15,530 in fiscal 2021.

The change in impact of working capital is due primarily to changes in timing of payments of accounts payable to Wakefern.

During the 13 weeks ended October 30, 2021, Village used cash to fund capital expenditures of $13,343, dividends of $3,264, principal payment of long-term debt of $1,999 and additional investments of $592 in notes receivable from Wakefern.

Capital expenditures primarily include costs associated with the purchase of the Galloway store shopping center, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.

We expect capital expenditures to range from $40,000 to $60,000 in fiscal 2022, dependent on the timing and completion of potential real estate transactions related to new and existing stores.

Planned expenditures include three major remodels, several smaller store remodels, the purchase of the Galloway store shopping center, one new Gourmet Garage store, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.

At October 30, 2021, the Company held variable rate notes receivable due from Wakefern of $27,635 that earn interest at the prime rate plus 1.25% and mature on August 15, 2022 and $28,252 that earn interest at the prime rate plus .75% and mature on February 15, 2024.

Working capital changes, including Other assets and liabilities, increased cash flows from operating activities by $4,986 in fiscal 2022 compared to a decrease of $939 in fiscal 2021.

The change in impact of working capital is due primarily to an increase in accounts payable to Wakefern and a lesser increase in merchandise inventories partially offset by an increase in income taxes receivable.

During the 26 weeks ended January 29, 2022, Village used cash to fund capital expenditures of $30,483, dividends of $6,525, principal payments of long-term debt of $3,975 and additional investments of $1,190 in notes receivable from Wakefern.

Capital expenditures primarily include costs associated with the purchase of the Galloway store shopping center, the purchase of land in central New Jersey for a potential replacement store and other development, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.

We expect capital expenditures to approximate $60,000 in fiscal 2022.

Planned expenditures include two major remodels, several smaller store remodels, the purchase of the Galloway store shopping center, the purchase of the Vineland store shopping center, the purchase of land in central New Jersey for a potential replacement store and other development, one new Gourmet Garage store, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.

At January 29, 2022, the Company held variable rate notes receivable due from Wakefern of $27,949 that earn interest at the prime rate plus 1.25% and mature on August 15, 2022 and $28,536 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 $68,358 at October 30, 2021 compared to $44,023 at July 31, 2021.

Working capital was $75,170 at January 29, 2022 compared to $44,023 at July 31, 2021.

Working capital ratios at the same dates were 1.48 and 1.29 to one, respectively.

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Credit Facility

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 Markets assets, including five stores and a production distribution center.

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

On January 28, 2022, the Company entered into an amended and restated credit agreement of the Company’s $150,500 credit facility (the “Credit Facility”) with Wells Fargo National Bank, National Association (“Wells Fargo”).

The notable changes from the previous agreement include:

(1) Modification of the reference rate from the London Interbank Offered Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR") as a result of the expected cessation of LIBOR, (2) The execution of a fifteen-year $7,350 secured term loan to finance the acquisition of the Galloway shopping center and (3) Modification of the definition of Total Adjusted Debt for the purpose of determining the maximum adjusted debt to EBITDAR ratio financial covenant.

Among other things, the Credit Facility provides for:

• An unsecured revolving line of credit providing a maximum amount available for borrowing of $75,000.

Indebtedness under this agreement bears interest at the applicable LIBOR rate plus 1.10% and expires on May 6, 2025.

• An unsecured term loan with a maximum loan amount of $25,500.

On May 12, 2020, Village executed a $25,500 term note, repayable in equal monthly installments based on a seven-year amortization schedule through May 4, 2027 and bearing interest at the applicable LIBOR rate plus 1.35%.

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.

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

The conversion reduced the maximum amount available for borrowing under the revolving line of credit from $125,000 to $75,000.

The term loan bears interest at the applicable LIBOR rate plus 1.50% and is repayable in equal monthly installments based on a fifteen-year amortization schedule beginning on the conversion date.

Additionally, Village previously executed a forward interest rate swap, effective on the conversion date, for a notional amount equal to the term loan amount that fixes the base LIBOR rate at .69% per annum for 15 years, resulting in a fixed effective interest rate of 2.19% on the converted term loan.

Indebtedness under this agreement bears interest at the applicable SOFR plus 1.10% and expires on May 6, 2025.

• An unsecured $25,500 term loan issued on May 12, 2020, repayable in equal monthly installments based on a seven-year amortization schedule through May 4, 2027 and bearing interest at the applicable SOFR plus 1.46%.

Prior to the January 28, 2022 amendment to the credit facility, interest accrued on the unsecured term loan at the applicable LIBOR plus 1.35%.

An interest rate swap with notional amounts equal to the term loan fixed the base LIBOR at .41%, resulting in a fixed effective rate of 1.76%.

In February 2022, the Company executed an amendment and restatement of the interest rate swap that fixes the base SOFR at .26% per annum through May 4, 2027, resulting in a fixed effective interest rate of 1.72% on the term loan.

• A secured $50,000 term loan issued on September 1, 2020 repayable in equal monthly installments based on a fifteen-year amortization schedule through September 1, 2035 and bearing interest at the applicable SOFR plus 1.61%.

Prior to the January 28, 2022 amendment to the credit facility, interest accrued on the secured term loan at the applicable LIBOR plus 1.50%.

An interest rate swap with notional amounts equal to the term loan fixed the base LIBOR at .69%, resulting in a fixed effective rate of 2.19%.

In February 2022, the Company executed an amendment and restatement of the interest rate swap related to the term loan that fixes the base SOFR at .57% per annum through September 1, 2035, resulting in a fixed effective interest rate of 2.18% on the term loan.

The term loan is secured by real properties of Village Super Market, Inc.

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 30, 2021), which secure obligations for store leases and construction performance guarantees to municipalities.

• A secured $7,350 term loan issued on January 28, 2022 repayable in equal monthly installments based on a fifteen-year amortization schedule through January 28, 2037 and bearing interest at the applicable SOFR plus 1.50%.

Additionally, Village executed an interest rate swap for a notional amount equal to the term loan amount that fixes the base SOFR at 1.41% per annum, resulting in a fixed effective interest rate of 2.91% on the term loan.

The term loan is secured by the Galloway store shopping center acquired in the first quarter of fiscal 2022.

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

The Credit Facility also provides for up to $25,000 of letters of credit ($7,336 outstanding at January 29, 2022), 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 30, 2021.

Based on current trends, the Company believes cash and cash equivalents on hand at October 30, 2021, operating cash flow and availability under our Credit Facility are sufficient to meet our liquidity needs for the next twelve months and for the foreseeable future beyond the next twelve months.

There have been no other substantial changes as of October 30, 2021 to the contractual obligations and commitments discussed in the Company’s Annual Report on Form 10-K for the year ended July 31, 2021.

The Company was in compliance with all covenants of the credit agreement at January 29, 2022.

Based on current trends, the Company believes cash and cash equivalents on hand at January 29, 2022, operating cash flow and availability under our Credit Facility are sufficient to meet our liquidity needs for the next twelve months and for the foreseeable future beyond the next twelve months.

There have been no other substantial changes as of January 29, 2022 to the contractual obligations and commitments discussed in the Company’s Annual Report on Form 10-K for the year ended July 31, 2021.

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

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• Due to continued uncertainties in the extent and duration of the COVID-19 pandemic and its impact on our business, we will not provide same store sales guidance for fiscal 2022.

• We expect capital expenditures to range from $40,000 to $60,000 in fiscal 2022, dependent on the timing and completion of potential real estate transactions related to new and existing stores.

Planned expenditures include three major remodels, several smaller store remodels, the purchase of the Galloway store shopping center, one new Gourmet

Garage store, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.

• We expect capital expenditures to approximate $60,000 in fiscal 2022.

• The Board’s current intention is to continue to pay quarterly dividends in 2022 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