What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-03-10 · 163 added, 1 removed, 57 unchanged (74% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations:

Results of Operations (continued)

When calculating the percentage change in comparable store sales, the Company defines a new store to be comparable after it has been in operation for five full fiscal quarters.

Relocated stores and stores with expanded square footage are included in comparable store sales since these units are located in existing markets and are open during construction.

Planned store dispositions are excluded from the calculation.

The Company only includes retail food stores in the calculation.

Analysis of Consolidated Statements of Income

Percentage Change

(amounts in thousands except per share amounts)

For the Fiscal Years Ended December 31, 2022, December 25, 2021 and December 26, 2020

Cost of sales, including advertising, warehousing and distribution expenses

Gross profit on sales

Gross profit margin

Operating, general and administrative expenses

O, G & A, percent of net sales

Income from operations

Operating margin

Investment income (loss) and interest expense

Investment income (loss) and interest expense, percent of net sales

Other income (expense)

Other income (expense), percent of net sales

Income before provision for income taxes

Income before provision for income taxes, percent of net sales

Provision for income taxes

Effective income tax rate

Net income, percent of net sales

Basic and diluted earnings per share

Individual Year-Over-Year Analysis of Sales

Percentage Change

Net sales, excluding fuel

Net sales, adjusted for an additional week in 2022

Net sales, adjusted for an additional week in 2022, excluding fuel

Comparable store sales

Comparable store sales, excluding fuel

The 2021 and 2020 years were comprised of 52 weeks, whereas the 2022 year was comprised of 53 weeks.

When calculating the percentage change in comparable store sales, the Company defines a new store to be comparable when it has been in operation after five full fiscal quarters.

Relocated stores and stores with expanded square footage are included in comparable store sales since these units are located in existing markets and are open during construction.

Planned store dispositions are excluded from the calculation.

The Company only includes retail food stores in the calculation.

WEIS MARKETS, INC.

Management's Discussion and Analysis of Financial Condition and Results of Operations:

Results of Operations (continued)

Net Sales (continued)

According to the latest U.S.

Bureau of Labor Statistics’ report, the annual Seasonally Adjusted Food-at-Home Consumer Price Index increased 11.4% in 2022, 3.5% in 2021 and 3.5% in 2020.

Even though the U.S.

Bureau of Labor Statistics’ index rates may be reflective of a trend, it will not necessarily be indicative of the Company’s actual results.

According to the U.S.

Department of Energy, the 53-week average price of gasoline in the Central Atlantic States increased 31.4%, or $1.00 per gallon, in 2022 compared to the 52-week average in 2021.

The 52-week average price of gasoline in the Central Atlantic States, according to the U.S.

Department of Energy, increased 31.2%, or $0.76 per gallon, in 2021 compared to the 52-week average in 2020.

Comparable store sales increased for all years presented, in small part due to an additional selling week in 2022.

On a comparable store sales basis fresh, pharmacy services and fuel increased in sales.

The Company’s 2022 sales were favorably impacted as a result of increased pharmacy prescription volume, administering COVID-19 vaccines and higher fuel sales.

Comparable store sales, adjusted for an additional week in 2022 increased 8.8% including fuel and 7.5% excluding fuel for 2022 compared to 2021.

The Company has provided additional product offerings and customer conveniences such as “Weis 2 Go Online,” currently offered at 188 store locations.

“Weis 2 Go Online” allows the customer to order on-line and have their order delivered or picked up at an expedient store drive-thru.

The Company has experienced retail inflation and deflation in various commodities for the periods presented.

Management cannot accurately measure the full impact of inflation or deflation on retail pricing due to changes in the types of merchandise sold between periods, shifts in customer buying patterns and the fluctuation of competitive factors.

In addition, impacts of the novel coronavirus pandemic have caused uncertainty about future economic conditions and may change future product mix.

Management remains confident in its ability to generate long-term sales growth in a highly competitive environment, but also understands some competitors have greater financial resources and could use these resources to take measures which could adversely affect the Company’s competitive position.

Cost of Sales and Gross Profit

Cost of sales consists of direct product costs (net of discounts and allowances), net advertising costs, warehousing costs, transportation costs, as well as manufacturing facility costs.

Increased sales volume resulted in an increase in cost of sales.

Both direct product cost and distribution cost increase when sales volume increases.

Gross profit rate was 25.2% in 2022, 26.4% in 2021 and 26.8% in 2020.

The decrease in gross profit rate is attributable to sales deleverage, primarily in fresh selling departments;

increased pharmacy and fuel sales, which have a lower gross profit margin than grocery sales;

and higher product and supply chain costs.

The Company experienced unfavorable non-cash LIFO inventory valuation adjustments, decreasing gross profit by $29.2 million and $4.0 million in 2022 and 2021, respectively.

A favorable non-cash LIFO inventory valuation adjustment increased gross profit by $275 thousand in 2020.

The Company has experienced retail inflation and deflation in various commodities for the periods presented.

WEIS MARKETS, INC.

Management's Discussion and Analysis of Financial Condition and Results of Operations:

Results of Operations (continued)

Operating, General and Administrative Expenses

The majority of the expenses were driven by increased sales volume.

Employee-related costs such as wages, employer paid taxes, health care benefits and retirement plans, comprise approximately 60.7% of the total “Operating, general and administrative expenses.” As a percent of sales, direct store labor decreased 0.5% in 2022 compared to 2021 and decreased 0.1% in 2021 compared to 2020.

While direct store labor expenses increased in 2022 compared to 2021, and 2021 compared to 2020, the sales increases have outpaced the labor expense increase causing the rate to fall, primarily due to the fixed component of store labor.

Management continues to monitor store labor efficiencies and develop labor standards to reduce costs while maintaining the Company’s customer service expectations.

Currently, the Company is continuing a multi-year initiative to install or upgrade self-checkouts in its stores in response to customer preference and labor supply, including adding convertible dual-use checkout lanes.

The Company’s self-insured health care benefit expenses decreased by 0.2% in 2022 compared to 2021 and increased by 0.2% in 2021 compared to 2020.

Depreciation and amortization expense charged to “Operating, general and administrative expenses” was $94.6 million, or 2.0% of net sales, for 2022 compared to $93.8 million, or 2.2% of net sales, for 2021 and $90.2 million, or 2.2% of net sales, for 2020.

See the Liquidity and Capital Resources section for further information regarding the Company’s capital expenditure program.

A breakdown of the material increases (decreases) as a percent of sales in "Operating, general and administrative expenses"

is as follows:

(amounts in thousands)

Increase (Decrease)

December 31, 2022

as a % of sales

Employee expense

Utilities expense

Fixed expense (amortization, depreciation, insurance expenses, and occupancy costs)

Other expenses (financial service fees, technology, repairs and maintenance, supplies)

(amounts in thousands)

Increase (Decrease)

December 25, 2021

as a % of sales

Employee expense

Utilities expense

Fixed expense (amortization, depreciation, insurance expenses, and occupancy costs)

Other expenses (financial service fees, technology, repairs and maintenance, supplies)

The majority of the increases in other expenses from 2020 to 2021 and 2022 were higher financial service fees due to more sales transaction dollars paid with debit and credit cards and higher information technology expenses due to more third-party subscription and consulting services.

WEIS MARKETS, INC.

Management's Discussion and Analysis of Financial Condition and Results of Operations:

Results of Operations (continued)

Provision for Income Taxes

The effective income tax rate was 22.1%, 26.6% and 27.3% in 2022, 2021 and 2020, respectively.

The effective income tax rate differs from the federal statutory rate of 21% primarily due to state taxes as well as nondeductible employee expenses.

The Company reduced its provision for income taxes by $5.5 million in 2022 primarily due to the effects of Pennsylvania House Bill 1342 which was enacted on July 8, 2022.

The bill made significant changes to the Commonwealth’s corporate income tax laws which included lowering the tax rate gradually from 9.99% in 2022 to 4.99% in 2031, updating market sourcing rules, and codifying the economic nexus standard.

Liquidity and Capital Resources

The primary source of cash is cash flows generated from operations.

In addition, the Company has access to a revolving credit agreement entered into on September 1, 2016, and amended on September 29, 2021, with Wells Fargo Bank, N.A.

(the “Credit Agreement”).

The Credit Agreement matures on September 1, 2024 and provides for an unsecured revolving credit facility with an aggregate principal amount not to exceed $30.0 million with an additional discretionary amount available of $70.0 million.

As of December 31, 2022, the availability under the revolving credit agreement was $25.5 million with $4.5 million of letters of credit outstanding.

The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company.

The Company has not had an obligation on the Credit Agreement since the second quarter of 2018.

The Company’s investment portfolio consists of high-grade bonds with maturity dates between one and 20 years and four high yield, large capitalized public company equity securities.

The portfolio totaled $186.4 million as of December 31, 2022.

Management anticipates maintaining the investment portfolio but has the ability to liquidate if needed.

See “Item 7a.

Quantitative and Qualitative Disclosures about Market Risk” for more details regarding the Company’s market risk.

The Company’s capital expenditure program includes the construction of new superstores, the expansion and remodeling of existing units, the acquisition of sites for future expansion, new technology purchases and the continued upgrade of the Company’s distribution facilities and transportation fleet.

Management currently plans to invest approximately $150 million in its capital expenditure program in 2023, including multiple carryover projects from 2022 that were delayed due to labor and supply chain disruptions.

The Board of Directors’ 2004 resolution authorizing the repurchase of up to one million shares of the Company’s common stock has a remaining balance of 752,468 shares.

Quarterly Cash Dividends

Total cash dividend payments on common stock, on a per share basis, amounted to $1.30 in 2022, $1.25 in 2021 and $1.24 in 2020.

The Company increased its quarterly dividend from 32 cents per share to 34 cents per share in the fourth quarter of 2022.

The Company expects to continue paying regular cash dividends on a quarterly basis.

However, the Board of Directors reconsiders the declaration of dividends quarterly.

The Company pays these dividends at the discretion of the Board of Directors and the continuation of these payments and the amount of the dividends depends upon the financial condition of the Company, results of operations and other factors which the Board of Directors deems relevant.

WEIS MARKETS, INC.

Management's Discussion and Analysis of Financial Condition and Results of Operations:

Results of Operations (continued)

Cash Flow Information

(amounts in thousands)

For the Fiscal Years Ended December 31, 2022,

December 25, 2021 and December 26, 2020

Net cash provided by (used in):

Operating activities

Investing activities

Financing activities

Cash flows from operating activities decreased in 2022 as compared to 2021 and 2021 as compared to 2020, respectively.

The decrease in 2022 from 2021 is due to increases in inventory and in 2021 from 2020 is due to settling working capital obligations.

Property and equipment purchases totaled $122.2 million in 2022, compared to $151.8 million in 2021 and $131.0 million in 2020.

As a percentage of sales, capital expenditures totaled 2.5% in 2022, 3.6% in 2021 and 3.2% in 2020.

Multiple projects from 2022 are expected to be completed in 2023 due to labor and supply chain disruptions.

The Company significantly increased its marketable securities holdings in 2021 by approximately $96.6 million and in 2022, the Company maintained its marketable securities portfolio.

The Company paid dividends of $35.0 million in 2022, $33.6 million in 2021 and $33.4 million in 2020.

The Company increased its quarterly dividend from 32 cents per share to 34 cents per share in the fourth quarter of 2022.

The Company previously increased its quarterly dividend from 31 cents per share to 32 cents per share in the fourth quarter of 2021.

Contractual Obligations

The following table represents scheduled maturities of the Company’s long-term contractual obligations as of December 31, 2022.

Payments due by period

(dollars in thousands)

Operating leases

Off-Balance Sheet Arrangements

The Company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, results of operations or cash flows.

WEIS MARKETS, INC.

Management's Discussion and Analysis of Financial Condition and Results of Operations:

Critical Accounting Policies and Estimates

15 unchanged sentences

Promotional rebates and credits are accounted for as a reduction in the cost of inventory and recognized when the related inventory is sold.

Volume incentive discounts are realized as a reduction of cost of sales at the time it is deemed probable and reasonably estimatable that the incentive target will be reached.

Volume incentive discounts are accounted for as a reduction of cost of sales and realized using estimated amounts at the time it is deemed probable that the incentive target will be reached.

Long-term contract incentives, which require an exclusive vendor relationship, are allocated over the life of the contract.

38 unchanged sentences

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