Village Super Market - 10-Q quarterly report FY2012 Q3

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

[x]   QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES

       EXCHANGE ACT OF 1934.

       For the quarterly period ended:  April 28, 2012

OR

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE  SECURITIES

      EXCHANGE ACT OF 1934.

Commission File No. 0-33360

VILLAGE SUPER MARKET, INC.

(Exact name of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                                             Yes   X        No  __

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                               Yes   X          No __

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12-b2 of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                                     Yes __        No  X

 

Indicate the number of shares outstanding of the issuer's classes of common stock as of the latest practicable date:       June 6, 2012

 

VILLAGE SUPER MARKET, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

 (in Thousands) (Unaudited)

VILLAGE SUPER MARKET, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

 (in Thousands, except Per Share Amounts) (Unaudited)

VILLAGE SUPER MARKET, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

 (in Thousands) (Unaudited)

1.             In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly the consolidated financial position as of April 28, 2012 and the consolidated results of operations and cash flows for the thirteen and thirty-nine week periods ended April 28, 2012 and April 30, 2011 of Village Super Market, Inc. (the “Company” or “Village”).

The significant accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements in the July 30, 2011 Village Super Market, Inc. Annual Report on Form 10-K, which should be read in conjunction with these financial statements.

2.             The results of operations for the periods ended April 28, 2012 are not necessarily indicative of the expected results for the full year.

4.             The Company computes net income per share using the two-class method,  an earnings allocation formula that calculates basic and diluted net income per share for each class of common stock separately based on dividends declared and participation rights in undistributed earnings.  Under the two-class method, our Class A common stock is assumed to receive a 54% greater participation in undistributed earnings than our Class B common stock, in accordance with the classes’ respective dividend rights.

Diluted net income per share for Class A common stock is calculated utilizing the if-converted method, which assumes the conversion of all shares of Class B common stock to shares of Class A common stock on a share-for-share basis, as this method is more dilutive than the two-class method.   Diluted net income per share for Class B common stock does not assume conversion of Class B common stock to shares of Class A common stock.

Outstanding stock options to purchase Class A shares of 222 and 29 were excluded from the calculation of diluted net income per share at April 28, 2012 and April 30, 2011, respectively, as a result of their anti-dilutive effect. In addition, 300 and 292 non-vested restricted Class A shares, which are considered participating securities, and their allocated net income were excluded from the diluted net income per share calculation at April 28, 2012 and April 30, 2011, respectively, due to their anti-dilutive effect.

6.             The Company sponsors four defined benefit pension plans.  Net periodic pension costs for the four plans include the following components:

As of April 28, 2012, the Company has contributed $425 to its pension plans in fiscal 2012.  The Company expects to contribute an additional $2,575 in the fourth quarter of fiscal 2012 to fund its pension plans.

On April 15, 2011, Village, along with all of the other individual employers trading as ShopRite, permanently withdrew from participating in the United Food and Commercial Workers Local 152 Retail Meat Pension Fund, effective the end of April 2011. The Company recorded a pre-tax charge of $7,028 in fiscal 2011 for this withdrawal liability, which represented our estimate of the liability based on calculations provided by the Fund actuary. The Company settled this obligation in January 2012, resulting in a pre-tax benefit of $646 in the second quarter of fiscal 2012. Village remains liable for potential additional withdrawal liabilities to the Fund in the event a mass withdrawal, as defined by statute, occurs within two plan years after the plan year of Village’s withdrawal.  Such liabilities could be material to the Company’s consolidated financial statements.

7.             On January 29, 2012, Village acquired store fixtures, leasehold interests and other assets of the ShopRite in Old Bridge, NJ for $3,250 plus inventory and other working capital for $1,116.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in Thousands)

The Company operates a chain of 29 ShopRite supermarkets in New Jersey, Maryland and northeastern Pennsylvania.  On January 29, 2012, Village acquired the store fixtures, lease and other assets of the ShopRite in Old Bridge, NJ for $3,250 plus inventory and other working capital for $1,116.  In July 2011, Village acquired the store fixtures, leases and other assets of two locations in Maryland for $6,595 from SuperFresh.  These stores opened as ShopRites on July 28, 2011 after minor remodeling.  Village is the second largest member of Wakefern Food Corporation (“Wakefern”), the nation’s largest retailer-owned food cooperative and owner of the ShopRite name.  As further described in the Company’s Form 10-K, this ownership interest in Wakefern provides Village many of the economies of scale in purchasing, distribution, advanced retail technology, marketing and advertising associated with larger chains.

The Company’s stores, five of which are owned, average 57,000 total square feet.  Larger store sizes enable the Company to offer the specialty departments that customers desire for one-stop shopping, including pharmacies, natural and organic departments, ethnic and international foods, and home meal replacement.

The supermarket industry is highly competitive.  The Company competes directly with multiple retail formats, including national, regional and local supermarket chains as well as warehouse clubs, supercenters, drug stores, discount general merchandise stores, fast food chains, dollar stores and convenience stores.  Village competes by using low pricing, superior customer service, and a broad range of consistently available quality products, including ShopRite private labeled products.  The ShopRite Price Plus card also strengthens customer loyalty.

We consider a variety of indicators to evaluate our performance, such as same store sales; percentage of total sales by department (mix); shrink; departmental gross profit percentage; sales per labor hour; and hourly labor rates.

During fiscal 2012 and 2011, the supermarket industry was impacted by changing consumer behavior due to the weak economy and high unemployment.  Consumers are increasingly cooking meals at home, but spending cautiously by trading down to lower priced items, including private label, and concentrating their buying on sale items.  Also, the Company estimates that product prices overall experienced inflation in the first nine months of fiscal 2012 and in the second half of fiscal 2011. Further, the Company’s sales and net income benefited in the fourth quarter of fiscal 2011 and the first nine months of fiscal 2012 from store closings by competitors.

 

 

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

 

Sales.  Sales were $347,009 in the third quarter of fiscal 2012, an increase of 9.6% from the third quarter of the prior year.  Sales increased due to the opening of the two new stores in Maryland, the acquisition of the store in Old Bridge, NJ on January 29, 2012, and a same store sales increase of 3.8%.  Same store sales increased due to higher sales in six stores due to store closings by competitors, inflation, increased customer counts and improved sales in the Washington and Marmora stores, which opened in recent fiscal years.  As expected, the impact of the competitive store closings that began in fiscal 2011 and inflation both moderated beginning in the third quarter of fiscal 2012.  Sales continue to be impacted by economic weakness, high gas prices and high unemployment, which have resulted in increased sale item penetration and trading down.  Village projects a fourth quarter same store sales increase of 1.5% to 3.0%, as we expect less benefit from competitive store closings and inflation.  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.  Store renovations are included in same store sales immediately.

Sales were $1,052,384 in the nine-month period of fiscal 2012, an increase of 10.3% from the prior year.  Sales increased due to the opening of the two new stores in Maryland, the acquisition of the Old Bridge store and a same store sales increase of 6.0%.  Same store sales increased due to higher sales in seven stores due to store closings by competitors, inflation, increased customer counts and improved sales in the Washington and Marmora stores, which opened in recent fiscal years.

Gross Profit.  Gross profit as a percentage of sales increased .15% in the third quarter of fiscal 2012 compared to the third quarter of the prior year primarily due to increased departmental gross margin percentages (.22%), partially offset by higher promotional spending (.11%).

 

Gross profit as a percentage of sales increased .49% in the nine-month period of fiscal 2012 compared to the corresponding period of the prior year primarily due to increased departmental gross margin percentages (.20%), decreased warehouse assessment charges from Wakefern (.21%) and higher patronage dividends (.09%).

Operating and Administrative Expense.  Operating and administrative expense as a percentage of sales decreased 2.09% in the third quarter of fiscal 2012 compared to the third quarter of the prior year primarily due to the prior year including a $7,300 charge for the withdrawal liability from a multi-employer defined benefit plan (2.31%), lower utility costs (.12%) and operating leverage from the 3.8% same store sales increase.  These improvements were partially offset by higher operating costs as a percentage of sales for the new Maryland stores.

Operating and administrative expense as a percentage of sales decreased .89% in the nine-month period of fiscal 2012 compared to the nine-month period of the prior year primarily due to the prior year including a $7,300 charge for the withdrawal liability from a multi-employer defined benefit plan (.77%), lower utility costs (.11%) and operating leverage from the 6.0% same store sales increase.  These improvements were partially offset by higher operating costs as a percentage of sales for the new Maryland stores, including store opening costs.

               Depreciation and Amortization.  Depreciation and amortization expense increased in the third quarter and nine-month period of fiscal 2012 compared to the corresponding periods of the prior year due to depreciation related to fixed asset additions, including the new stores in Maryland and Old Bridge.

Interest Expense.  Interest expense in the third quarter and nine-month period of fiscal 2012 is similar to the corresponding periods of the prior year.

Interest Income.  Interest income increased in the third quarter and nine-month period of fiscal 2012 compared to the corresponding periods of the prior year due to higher amounts invested.

 

Income Taxes.  The effective income tax rate was 41.5% and 42.0%, in the third quarter and nine-month period of fiscal 2012, respectively, compared to 41.8% and 41.9%, respectively, in the corresponding periods in the prior year.

Net Income.  Net income was $6,543 in the third quarter of fiscal 2012 compared to $1,668 in the prior year.  Excluding a $4,241 (net of tax) charge for the withdrawal liability from a multi-employer pension plan in the prior year, net income increased 11%.  Net income increased primarily due to improved same store sales.  Net income increased despite losses in the two new Maryland stores as sales in Maryland are lower than expected, and we continue to build market share and brand awareness.

 

 Net income was $22,426 in the nine-month period of fiscal 2012 compared to $12,218 in the prior year.  Excluding the $4,241 (net of tax) pension withdrawal charge from the prior year, net income increased 36%.  Net income increased primarily due to improved same store sales and gross profit percentages.  Net income increased despite losses in the two new Maryland stores as sales in Maryland are lower than expected, and we continue to build market share and brand awareness.

Critical accounting policies are those accounting policies that management believes are important to the portrayal of the Company’s financial condition and results of operations.  These policies require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.  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, accounting for pension plans, accounting for share-based compensation, and accounting for uncertain tax positions are described in the Company’s Annual Report on Form 10-K for the year ended July 30, 2011.  As of April 28, 2012, there have been no changes to any of the critical accounting policies contained therein.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Net cash provided by operating activities was $25,277 in the nine-month period of fiscal 2012 compared to $45,261 in the corresponding period of the prior year.  This decrease is primarily attributable to settlement of a $7,300 pension withdrawal liability in fiscal 2012, a reduction in accounts payable to Wakefern in fiscal 2012 compared to an increase in fiscal 2011, a larger increase in inventories in the current fiscal year, and the prior year including a refund of cash the Company had placed in escrow to fund a property acquisition.   These decreases were partially offset by higher net income in the current fiscal year.  During the first nine-months of fiscal 2012, Village used cash to fund capital expenditures of $13,007, the acquisition of the Old Bridge ShopRite of $4,123 and dividends of $6,881.  Capital expenditures include remodeling and equipment costs for the acquired Maryland stores.

Village has budgeted approximately $18,000 for capital expenditures for fiscal 2012.  Planned expenditures included several smaller remodels and the installation of solar panels in one store.  The Company’s primary sources of liquidity in fiscal 2012 are expected to be cash and cash equivalents on hand at April 28, 2012 and operating cash flow generated in fiscal 2012.

Working capital was $61,532 at April 28, 2012 compared to $44,448 at July 30, 2011.  The working capital ratio was 1.6 to 1 at April 28, 2012 compared to 1.4 to 1 at July 30, 2011.  The Company’s working capital needs are reduced, since inventories are generally sold by the time payments to Wakefern and other suppliers are due.

There have been no substantial changes as of April 28, 2012 to the contractual obligations and commitments discussed on page 7 of the Company’s Annual Report on Form 10-K for the year ended July 30, 2011, except for an additional $899 required investment in Wakefern common stock.

This Form 10-Q contains certain forward-looking statements about Village’s future performance. These statements are based on management’s assumptions and beliefs in light of information currently available.  Such statements relate to, for example:  economic conditions; expected pension plan contributions; projected capital expenditures; cash flow requirements; inflation expectations; and legal matters; 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 undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof.

A description of the Company’s transactions with Wakefern, its principal supplier, and with other related parties is included on pages 9, 18 and 21 of the Company’s Annual Report on Form 10-K for the year ended July 30, 2011.  There have been no significant changes in the Company’s relationship or nature of the transactions with related parties during the nine months of fiscal 2012, except for additional required investments in Wakefern stock of $899.

 

At April 28, 2012, the Company had demand deposits of $70,579 at Wakefern earning interest at overnight money market rates, which are exposed to the impact of interest rate changes.

At April 28, 2012, the Company had a $20,559 15-month note receivable due from Wakefern earning a fixed interest rate of 7%.  This note is automatically extended for additional, recurring 90-day periods, unless, not later than one year prior to the due date, the Company notifies Wakefern requesting payment on the due date. This note currently is scheduled to mature on May 20, 2013.

As required by Rule 13a-15 under the Exchange Act, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures at the end of the period.  This evaluation was carried out under the supervision, and with the participation, of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer.  Based upon that evaluation, the Company’s Chief Executive Officer, along with the Company’s Chief Financial Officer, concluded that the Company’s disclosure controls and procedures are effective.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

There have been no significant changes in internal controls over financial reporting during the third quarter of fiscal 2012.

 

PART II - OTHER INFORMATION

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.