What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-06-07 compared with 2023-03-08 · 71 added, 41 removed, 170 unchanged (40% of the section changed)

32 unchanged sentences

and hourly labor rates.

NON-GAAP MEASURES

The accompanying Consolidated Financial Statements, including the related notes, are presented in accordance with generally accepted accounting principles ("GAAP").

We provide non-GAAP measures, including Adjusted net income and Adjusted operating and administrative expenses as management believes these supplemental measures are useful to investors and analysts.

These non-GAAP financial measures should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP, nor as an alternative to net income, operating and administrative expense or any other GAAP measure of performance.

Adjusted net income and Adjusted operating and administrative expense are useful to investors because they provide supplemental measures that exclude the financial impact of certain items that affect period-to-period comparability.

Management and the Board of Directors use these measures as they provide greater transparency in assessing ongoing operating performance on a period-to-period basis.

Other companies may have different definitions of Non-GAAP Measures and provide for different adjustments, and comparability to the Company's results of operations may be impacted by such differences.

The Company's presentation of Non-GAAP Measures should not be construed as an implication that its future results will be unaffected by unusual or non-recurring items.

The following tables reconciles Net income (loss) to Adjusted net income and Operating and administrative expenses to Adjusted operating and administrative expenses:

13 Weeks Ended 39 Weeks Ended

2023 April 30,

2022 April 29,

2023 April 30,

Net Income (loss) $ 11,017 $ (3,231) $ 34,422 $ 14,227

Adjustments to Operating Expenses:

Litigation settlement gain (1) $ (1,200) $ — $ (1,200) $ —

Pension termination and settlement charges (2) — 12,296 — 12,296

Adjustments to Income Taxes:

Tax impact of adjustments to operating expenses 372 (3,780) 372 (3,780)

Adjusted net income $ 10,189 $ 5,285 $ 33,594 $ 22,743

Operating and administrative expenses $ 128,787 $ 137,751 $ 384,452 $ 385,521

Adjustments to operating and administrative expenses 1,200 (12,296) 1,200 (12,296)

Adjusted operating and administrative expenses $ 129,987 $ 125,455 $ 385,652 $ 373,225

Adjusted operating and administrative expenses as a % of sales 24.56 % 24.99 % 23.91 % 24.34 %

(1) Fiscal 2023 litigation settlement gains are related to claims associated with the Fairway acquisition and liabilities associated thereto.

(2) Fiscal 2022 pension settlement charges related primarily to the termination of the Village Super Market, Inc.

Employees’ Retirement Plan.

The Company contributed cash of $1,440 to fully fund the plan and the remaining $10,856 represents non-cash charges for unrecognized losses within accumulated other comprehensive loss as of the termination date.

RESULTS OF OPERATIONS

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13 Weeks Ended 39 Weeks Ended

January 28, 2023 January 29, 2022 January 28, 2023 January 29, 2022

April 29, 2023 April 30, 2022 April 29, 2023 April 30, 2022

Sales 100.00 % 100.00 % 100.00 % 100.00 %

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Depreciation and amortization 1.60 1.62 1.58 1.62

Operating income 2.86 2.72 2.89 2.45

Operating income (loss) 2.64 (0.85) 2.81 1.37

Interest expense (0.20) (0.20) (0.19) (0.19)

Interest income 0.60 0.19 0.48 0.18

Income before income taxes 3.17 2.71 3.13 2.44

Income (loss) before income taxes 3.04 (0.86) 3.10 1.36

Income taxes 0.96 (0.22) 0.97 0.43

Net income 2.19 % 1.88 % 2.16 % 1.69 %

Sales were $563,866 in the 13 weeks ended January 28, 2023, an increase of 4.9% compared to the 13 weeks ended January 29, 2022.

Net income (loss) 2.08 % (0.64) % 2.13 % 0.93 %

Sales were $529,294 in the 13 weeks ended April 29, 2023, an increase of 5.4% compared to the 13 weeks ended April 30, 2022.

Sales increased due to an increase in same store sales of 3.4%, the opening of a Gourmet Garage in the West Village in Manhattan, NY on April 29, 2022 and increased sales due to the remodel and conversion of the Pelham, NY Fairway to the ShopRite banner on August 15, 2022.

Same store sales increased due primarily to retail price inflation.

Sales were $1,083,555 in the 26 weeks ended January 28, 2023, an increase of 5.0% compared to the 26 weeks ended January 29, 2022.

Sales were $1,612,848 in the 39 weeks ended April 29, 2023, an increase of 5.2% compared to the 39 weeks ended April 30, 2022.

Sales increased due to an increase in same store sales of 3.6%, the opening of a Gourmet Garage in the West Village in Manhattan, NY on April 29, 2022 and increased sales due to the remodel and conversion of the Pelham, NY Fairway to the ShopRite banner on August 15, 2022.

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Gross Profit .

Gross profit as a percentage of sales decreased .37% in the 13 weeks ended January 28, 2023 compared to the 13 weeks ended January 29, 2022 due primarily to decreased departmental gross margin percentages (.18%), increased warehouse assessment charges from Wakefern (.11%), higher promotional spending (.11%) and increased LIFO charges (.08%) partially offset by a favorable change in product mix (.04%) and increased patronage dividends and rebates received from Wakefern (.07%).

Gross profit as a percentage of sales decreased .02% in the 26 weeks ended January 28, 2023 compared to the 26 weeks ended January 29, 2022 due primarily to increased LIFO charges (.12%), higher promotional spending (.03%) and decreased patronage dividends and rebates received from Wakefern (.01%) partially offset by increased departmental gross margin percentages (.04%), a favorable change in product mix (.06%) and decreased warehouse assessment charges from Wakefern (.04%).

Gross profit as a percentage of sales increased .36% in the 13 weeks ended April 29, 2023 compared to the 13 weeks ended April 30, 2022 due primarily to increased departmental gross margin percentages (.47%) and decreased LIFO charges (.04%) partially offset by increased warehouse assessment charges from Wakefern (.14%).

Gross profit as a percentage of sales increased .10% in the 39 weeks ended April 29, 2023 compared to the 39 weeks ended April 30, 2022 due primarily to increased departmental gross margin percentages (.23%) partially offset by increased LIFO charges (.12%).

Operating and Administrative Expense.

Operating and administrative expense as a percentage of sales decreased .47% in the 13 weeks ended January 28, 2023 compared to the 13 weeks ended January 29, 2022 due primarily to lower labor costs and fringe benefits (.41%) and decreased supply spending (.13%).

Operating and administrative expense as a percentage of sales decreased 3.11% in the 13 weeks ended April 29, 2023 compared to the 13 weeks ended April 30, 2022.

Adjusted operating and administrative expense as a percentage of sales decreased .43% in the 13 weeks ended April 29, 2023 compared to the 13 weeks ended April 30, 2022 due primarily to lower labor costs and fringe benefits (.35%) and decreased supply spending (.19%) partially offset by increased facility costs (.07%).

Labor costs and fringe benefits decreased due primarily to sales leverage and ongoing productivity initiatives partially offset by minimum wage and market-driven pay rate increases.

Operating and administrative expense as a percentage of sales decreased .42% in the 26 weeks ended January 28, 2023 compared to the 26 weeks ended January 29, 2022 due primarily to lower labor costs and fringe benefits (.30%) and decreased supply spending (.14%).

Operating and administrative expense as a percentage of sales decreased 1.30% in the 39 weeks ended April 29, 2023 compared to the 39 weeks ended April 30, 2022.

Adjusted operating and administrative expense as a percentage of sales decreased to .43% in the 39 weeks ended April 29, 2023 compared to the 39 weeks ended April 30, 2022 due primarily to lower labor costs and fringe benefits (.32%) and decreased supply spending (.16%).

Labor costs and fringe benefits decreased due primarily to sales leverage and ongoing productivity initiatives partially offset by minimum wage and market-driven pay rate increases.

Depreciation and Amortization .

Depreciation and amortization expense increased in the 13 and 26 weeks ended January 28, 2023 compared to the 13 and 26 weeks ended January 29, 2022 due primarily to capital expenditures.

Depreciation and amortization expense increased in the 13 and 39 weeks ended April 29, 2023 compared to the 13 and 39 weeks ended April 30, 2022 due primarily to capital expenditures.

Interest Expense .

Interest expense increased in the 13 and 26 weeks ended January 28, 2023 compared to the 13 and 26 weeks ended January 29, 2022 due primarily to higher average outstanding debt balances.

Interest expense increased in the 13 and 39 weeks ended April 29, 2023 compared to the 13 and 39 weeks ended April 30, 2022 due primarily to higher average outstanding debt balances.

Interest Income .

Interest income increased in the 13 and 26 weeks ended January 28, 2023 compared to the 13 and 26 weeks ended January 29, 2022 due primarily to higher interest rates and larger amounts invested in variable rate notes receivable from Wakefern and demand deposits at Wakefern.

Interest income increased in the 13 and 39 weeks ended April 29, 2023 compared to the 13 and 39 weeks ended April 30, 2022 due primarily to higher interest rates and larger amounts invested in variable rate notes receivable from Wakefern and demand deposits at Wakefern.

Income Taxes.

The effective income tax rate was 30.9% in the 13 and 26 weeks ended January 28, 2023 compared to 30.7% in both the 13 and 26 weeks ended January 29, 2022.

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

Net Income was $12,322 in the 13 weeks ended January 28, 2023 compared to net income of $10,129 in the 13 weeks ended January 29, 2022.

Net income increased 22% due primarily to the 3.2% increase in same store sales, lower operating and administrative expenses as a percentage of sales and higher interest income.

Net income was $23,405 in the 26 weeks ended January 28, 2023 compared to $17,457 in the 26 weeks ended January 29, 2022.

Net income increased 34% due primarily to the 3.7% increase in same store sales, lower operating and administrative expenses as a percentage of sales and higher interest income.

The effective income tax rate was 31.6% in the 13 weeks ended April 29, 2023 compared to 25.4% in the 13 weeks ended April 30, 2022.

The 13 weeks ended April 30, 2022 includes the recognition of a discrete tax benefit related to the pension termination settlement charge recognized in the quarter.

Excluding the impact of the pension termination settlement charge and related discrete tax benefit, the effective income tax rate was 33.7% in the 13 weeks ended April 30, 2022.

The decrease in the effective income tax rate is due primarily to a lesser impact of unfavorable return to provision adjustments in the 13 weeks ended April 29, 2023 compared to the 13 weeks ended April 30, 2022.

The effective income tax rate was 31.2% in the 39 weeks ended April 29, 2023 compared to 31.7% in the 39 weeks ended April 30, 2022.

The decrease in the effective income tax rate is due primarily to a lesser impact of unfavorable return to provision adjustments in the 39 weeks ended April 29, 2023 compared to the 39 weeks ended April 30, 2022.

Net Income was $11,017 in the 13 weeks ended April 29, 2023 compared to a net loss of $3,231 in the 13 weeks ended April 30, 2022.

Adjusted net income was $10,189 in the 13 weeks ended April 29, 2023, an increase of 93% compared to $2,297 in the 13 weeks ended April 30, 2022.

Net income was $34,422 in the 39 weeks ended April 29, 2023 compared to $14,227 in the 39 weeks ended April 30, 2022.

Adjusted net income was $33,594 in the 39 weeks ended April 29, 2023, an increase of 48% compared to $10,213 in the 39 weeks ended April 30, 2022.

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 30, 2022.

A s of January 28, 2023, there have been no changes to the critical accounting policies contained therein.

A s of April 29, 2023, 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 $48,357 in the 26 weeks ended January 28, 2023 compared to $40,274 in the corresponding period of the prior year.

The change in cash flows from operating activities in fiscal 2023 was primarily due to higher net income adjusted for non-cash items partially offset by changes in working capital.

Working capital changes, including Other assets and liabilities, increased cash flows from operating activities by $4,275 in fiscal 2023 compared to a increase of $4,986 in fiscal 2022.

The change in impact of working capital is due primarily to increased merchandise inventories, the timing of tax payments, accounts payable to Wakefern and accounts payable and accrued expenses .

During the 26 weeks ended January 28, 2023, Village used cash to fund capital expenditures of $28,550, dividends of $6,507, principal payments of long-term debt of $4,903, an investment in a real estate partnership for the development of a retail center in Old Bridge, New Jersey of $3,319 and additional net investments of $32,573 in notes receivable from Wakefern.

Capital expenditures primarily include costs associated with the remodel and conversion of the Pelham, NY Fairway to the ShopRite banner, the new Gourmet Garage store in the West Village of New York City, the purchase of the Vineland store shopping center, installation of electronic shelf labels, continued expansion of self-checkout, and various technology, equipment and facility upgrades.

Net cash provided by operating activities was $68,244 in the 39 weeks ended April 29, 2023 compared to $51,702 in the corresponding period of the prior year.

The change in cash flows from operating activities in fiscal 2023 was primarily due to higher net income adjusted for non-cash items and changes in working capital.

Working capital changes, including Other assets and liabilities, increased cash flows from operating activities by $3,525 in fiscal 2023 compared to an increase of $1,279 in fiscal 2022.

The change in impact of working capital is due primarily to a lesser increase in merchandise inventories in fiscal 2023 compared to fiscal 2022, the timing of tax payments, accounts payable to Wakefern and accrued wages and benefits.

During the 39 weeks ended April 29, 2023, Village used cash to fund capital expenditures of $35,689, dividends of $9,845, principal payments of long-term debt of $7,764, an investment in a real estate partnership for the development of a retail center in Old Bridge, New Jersey of $4,268 and additional net investments of $34,415 in notes receivable from Wakefern.

store shopping center, installation of electronic shelf labels, continued expansion of self-checkout, and various technology, equipment and facility upgrades.

We have revised our budgeted capital expenditures downward from prior estimates to approximately $50,000 in fiscal 2023 due to the timing of construction spends for replacement stores shifting from fiscal 2023 into fiscal 2024.

expenditures include costs for construction of three replacement stores scheduled to open in fiscal 2024 and fiscal 2025, two major remodels, including the conversion of the Pelham, NY store from the Fairway to the ShopRite banner, the purchase of the Vineland store shopping center, several smaller store remodels and merchandising initiatives, installation of electronic shelf labels in six stores, continued expansion of self-checkout, and various technology, equipment and facility upgrades.

The Company’s primary sources of liquidity in fiscal 2023 are expected to be cash and cash equivalents on hand at January 28, 2023 and operating cash flow generated in fiscal 2023.

Planned expenditures include costs for construction of three replacement stores scheduled to open in fiscal 2024 and fiscal 2025, two major remodels, including the conversion of the Pelham, NY store from the Fairway to the ShopRite banner, the purchase of the Vineland store shopping center, several smaller store remodels and merchandising initiatives, installation of electronic shelf labels in six stores, continued expansion of self-checkout, and various technology, equipment and facility upgrades.

The Company’s primary sources of liquidity in fiscal 2023 are expected to be cash and cash equivalents on hand at April 29, 2023 and operating cash flow generated in fiscal 2023.

On April 28, 2022, the Company entered into a partnership agreement for 30% interest in the development of a retail center in Old Bridge, New Jersey, which includes a Village replacement store with future lease obligations of $9,280.

Village will fund its share of project costs estimated to be $15,000 to $20,000 over the two to three year life of the project.

As of January 28, 2023, Village has invested $8,329 into the real estate partnership, which is accounted for as an equity method investment included in Investments in Real Estate Partnerships on the Consolidated Balance Sheet.

As of April 29, 2023, Village has invested $9,278 into the real estate partnership, which is accounted for as an equity method investment included in Investments in Real Estate Partnerships on the Consolidated Balance Sheet.

On August 15, 2022, notes receivable due from Wakefern of $28,850 that earned interest at the prime rate plus 1.25% matured.

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On September 28, 2022, the Company invested an additional $30,000 in variable rate notes receivable from Wakefern that earn interest at the prime rate plus .50% and mature on September 28, 2027.

At January 28, 2023, the Company held variable rate notes receivable due from Wakefern of $30,171 that earn interest at the prime rate plus .75% and mature on February 15, 2024, $29,615 that earn interest at the prime rate plus .50% and mature on August 15, 2027 and $30,571 that earn interest at the prime rate plus .50% and mature on September 28, 2027.

At April 29, 2023, the Company held variable rate notes receivable due from Wakefern of $30,799 that earn interest at the prime rate plus .75% and mature on February 15, 2024, $30,212 that earn interest at the prime rate plus .50% and mature on August 15, 2027 and $31,188 that earn interest at the prime rate plus .50% and mature on September 28, 2027.

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 $34,299 at January 28, 2023 compared to $79,796 at July 30, 2022.

Working capital was $63,105 at April 29, 2023 compared to $79,796 at July 30, 2022.

Working capital ratios at the same dates were 1.39 and 1.50 to one, respectively.

The decrease in working capital in fiscal 2023 compared to fiscal 2022 is due primarily to $28,850 in notes receivable from Wakefern that matured on August 15, 2022 and were reinvested in long-term notes receivable from Wakefern and an additional $30,017 investment in long-term notes receivable from Wakefern.

The decrease in working capital in fiscal 2023 compared to fiscal 2022 is due primarily to an additional $30,017 investment in long-term notes receivable from Wakefern.

The Company’s working capital needs are reduced, since inventories are generally sold by the time payments to Wakefern and other suppliers are due.

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• 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%.

An interest rate swap with notional amounts equal to the term loan fixes the base SOFR at 1.41% per annum through January 28, 2037, resulting in a fixed effective interest rate of 2.91% on the term loan.

An interest rate swap with notional amounts equal to the term loan fixes the base SOFR at 1.41% per annum through

January 28, 2037, 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 for $9,800 in the first quarter of fiscal 2022.

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Village also executed an interest rate swap for a notional amount equal to the term loan amount that fixes the base SOFR at 3.59%, resulting in a fixed effective rate of 5.34%.

Based on current trends, the Company believes cash and cash equivalents on hand at January 28, 2023, 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 28, 2023 to the contractual obligations and commitments discussed in the Company’s Annual Report on Form 10-K for the year ended July 30, 2022.

Based on current trends, the Company believes cash and cash equivalents on hand at April 29, 2023, 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 April 29, 2023 to the contractual obligations and commitments discussed in the Company’s Annual Report on Form 10-K for the year ended July 30, 2022.

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

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These include:

• The COVID-19 pandemic created significant volatility and uncertainty in our business since the first outbreak in our trade area in March 2020.

Its continuing impact and the impact of new virus variants and the measures taken in response could adversely impact our business, financial condition and results of operations.

We continue to monitor and adjust the safety measures we have implemented since the beginning of the pandemic.

Our business may be affected by uncertain or changing economic and market conditions arising in connection with and in response to the COVID-19 pandemic, including labor shortages, inflation, disruptions to supply chains, higher operating and/or compliance costs, changes in customer trends and consumer demand, changes in federal, state and local laws, regulations and community response measures, the form and impact of economic stimulus, our customers access to and the continued availability of government benefit programs through the Supplemental Nutrition Assistance Program ("SNAP") and general overall economic instability.

It is unclear whether and to what extent sales, consumer behavior, general economic and business activity will return to pre-pandemic levels and its impact on our business.

Furthermore, the impact of the COVID-19 health crisis may exacerbate other risks and uncertainties included herein, which could have a material effect on the Company.

• The Fairway acquisition involves a number of risks, uncertainties and challenges, including under-performance relative to our expectations, additional capital requirements, unforeseen expenses or delays, imprecise assumptions or our inability to achieve projected cost savings or other synergies, competitive factors in the marketplace and difficulties integrating the business, including merging company cultures, cultivating brand strategy, expansion of food production and conforming the acquired company's technology, standards, processes, procedures and controls.

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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