Company Quick10K Filing
Quick10K
Ingles Markets
10-Q 2019-03-30 Quarter: 2019-03-30
10-Q 2018-12-29 Quarter: 2018-12-29
10-K 2018-09-29 Annual: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-30 Quarter: 2017-12-30
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-24 Quarter: 2017-06-24
10-Q 2017-03-25 Quarter: 2017-03-25
10-Q 2016-12-24 Quarter: 2016-12-24
10-K 2016-09-24 Annual: 2016-09-24
10-Q 2016-06-25 Quarter: 2016-06-25
10-Q 2016-03-26 Quarter: 2016-03-26
10-Q 2015-12-26 Quarter: 2015-12-26
10-K 2015-09-26 Annual: 2015-09-26
10-Q 2015-06-27 Quarter: 2015-06-27
10-Q 2015-03-28 Quarter: 2015-03-28
10-Q 2014-12-27 Quarter: 2014-12-27
10-K 2014-09-27 Annual: 2014-09-27
10-Q 2014-06-28 Quarter: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-Q 2013-12-28 Quarter: 2013-12-28
8-K 2019-05-08 Earnings
8-K 2019-02-15 Shareholder Vote
8-K 2019-02-07 Earnings, Exhibits
8-K 2018-12-07 Earnings
8-K 2018-08-09 Earnings
8-K 2018-05-10 Earnings, Exhibits
8-K 2018-04-26 Shareholder Vote
8-K 2018-02-09 Earnings, Exhibits
UDR UDR 12,320
LNT Alliant Energy 10,990
PLNT Planet Fitness 7,270
NMIH NMI Holdings 1,860
ORIT Oritani Financial 767
UCFC United Community Financial 453
MLP Maui Land & Pineapple 223
ENTB Entest Group 0
GNTW Globe Net Wireless 0
EVTN Enviro Technologies 0
IMKT 2019-03-30
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 6. Exhibits
EX-31.1 imkt-20190330xex31_1.htm
EX-31.2 imkt-20190330xex31_2.htm
EX-32.1 imkt-20190330xex32_1.htm
EX-32.2 imkt-20190330xex32_2.htm

Ingles Markets Earnings 2019-03-30

IMKT 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 imkt-20190330x10q.htm 10-Q 20190331 Q2 10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 10-Q

 

 

        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 

For the quarterly period ended March 30,  2019

 

         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 

For the transition period from                  to                 

 

Commission file number 0-14706.

 

 

 

INGLES MARKETS, INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

 

North Carolina

 

56-0846267

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

P.O. Box 6676, Asheville NC

 

28816

(Address of principal executive offices)

 

(Zip Code)

 

(828) 669-2941

Registrant’s telephone number, including area code

 

 

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     No .  



Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes     No .  



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one): 



Large accelerated filer

Accelerated filer

Non-accelerated filer (Do not check if a smaller reporting company.)

Smaller reporting company



Emerging growth company



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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  .



Securities registered pursuant to Section 12(b) of the Act:





 

 

Title of each class

 Trading Symbol

Name of each exchange on which registered

Class A Common Stock, $0.05 par value per share

 IMKTA

The NASDAQ Global Select Market



As of May 6, 2019 the Registrant had 14,177,335 shares of Class A Common Stock, $0.05 par value per share, outstanding and 6,082,441 shares of Class B Common Stock, $0.05 par value per share, outstanding.



 

1

 


 

 

INGLES MARKETS, INCORPORATED

 

INDEX

 



 

 



 

 

 

  

Page

No.

 

Part I — Financial Information

  

 



 

    Item 1. Financial Statements (Unaudited)

  

 



 

Condensed Consolidated Balance Sheets as of March 30, 2019 and September 29, 2018 

  



 

Condensed Consolidated Statements of Income and Comprehensive Income for the

  

 

Three Months Ended March 30, 2019 and March 31, 2018

  

Six Months Ended March 30, 2019 and March 31, 2018

  



 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended March 30, 2019 and March 31, 2018

  



 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 30, 2019 and March 31, 2018

  



 

Notes to Unaudited Interim Financial Statements

  



 

    Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

13 



 

    Item 3. Quantitative and Qualitative Disclosures About Market Risk

  

22 



 

   Item 4. Controls and Procedures

 

22 



 

Part II – Other Information

  

 



 

 



 

 

    Item 6. Exhibits

  

22 



 

Signatures

  

25 



2

 


 

Part I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS 

 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)







 

 

 

 

 



 

 

 

 

 



March 30,

 

September 29,



2019

 

2018

ASSETS

  

 

  

 

 

Current Assets:

  

 

  

 

 

Cash and cash equivalents

$

16,680,700 

 

$

10,537,303 

Receivables - net

  

73,588,532 

  

 

70,056,909 

Inventories

  

365,755,190 

  

 

372,195,421 

Other current assets

  

24,895,776 

  

 

43,953,483 

Total Current Assets

  

480,920,198 

  

 

496,743,116 

Property and Equipment – Net

  

1,333,891,905 

  

 

1,303,044,370 

Other Assets

  

27,685,779 

  

 

25,123,334 

Total Assets

$

1,842,497,882 

  

$

1,824,910,820 



  

 

  

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

  

 

  

 

 

Current Liabilities:

  

 

  

 

 

Current portion of long-term debt

$

12,835,969 

  

$

12,848,013 

Accounts payable - trade

 

162,982,107 

 

 

165,165,312 

Accrued expenses and current portion of other long-term liabilities

  

72,705,188 

  

 

82,124,766 

Total Current Liabilities

  

248,523,264 

  

 

260,138,091 

Deferred Income Taxes

  

81,566,382 

  

 

74,461,000 

Long-Term Debt

  

844,633,616 

  

 

852,739,760 

Other Long-Term Liabilities

  

41,829,844 

  

 

42,158,161 

Total Liabilities

  

1,216,553,106 

  

 

1,229,497,012 

Stockholders’ Equity

  

 

  

 

 

Preferred stock, $0.05 par value; 10,000,000 shares authorized; no shares issued

  

 —

  

 

 —

Common stocks:

  

 

  

 

 

Class A, $0.05 par value; 150,000,000 shares authorized; 14,177,335 shares issued and outstanding March 30, 2019 and 14,145,385 shares issued and outstanding at September 29, 2018

  

708,867 

 

 

707,269 

Class B, convertible to Class A, $0.05 par value; 100,000,000 shares authorized; 6,082,441 shares issued and outstanding March 30, 2019 and 6,114,391 shares issued and outstanding September 29, 2018

  

304,122 

 

 

305,720 

Paid-in capital in excess of par value

  

12,311,249 

 

 

12,311,249 

Accumulated other comprehensive income

 

(119,109)

 

 

 —

Retained earnings

  

612,739,647 

 

 

582,089,570 

Total Stockholders’ Equity

  

625,944,776 

 

 

595,413,808 

Total Liabilities and Stockholders’ Equity

$

1,842,497,882 

 

$

1,824,910,820 



See notes to unaudited condensed consolidated financial statements.

3

 


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)









 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 30,

 

March 31,



 

2019

 

2018



 

 

 

 

 

 

Net sales

 

$

1,001,843,929 

 

$

984,562,174 

Cost of goods sold

 

  

757,543,262 

 

  

749,374,530 

Gross profit

 

  

244,300,667 

 

  

235,187,644 

Operating and administrative expenses

 

  

216,466,382 

 

  

211,641,694 

Gain from sale or disposal of assets

 

  

2,911,704 

 

  

8,223 

Income from operations

 

  

30,745,989 

 

  

23,554,173 

Other income, net

 

  

447,914 

 

  

864,480 

Interest expense

 

  

11,996,863 

 

  

12,212,865 

Income before income taxes

 

  

19,197,040 

 

  

12,205,788 

Income tax  expense (benefit)

 

  

4,197,000 

 

 

2,911,000 

Net income

 

$

15,000,040 

 

$

9,294,788 



 

 

 

 

 

 

Other comprehensive (expense) income:

 

 

 

 

 

 

Change in fair value of interest rate swap

 

$

(598,764)

 

$

 —

Income tax benefit

 

 

139,316 

 

 

 —

Other comprehensive (expense) income, net of tax

 

 

(459,448)

 

 

 —

Comprehensive income

 

$

14,540,592 

 

$

9,294,788 



 

  

 

 

  

 

Net income per share amounts:

 

  

 

 

  

 

Class A Common Stock

 

 

 

 

 

 

Basic earnings  per common share

 

$

0.76 

 

$

0.47 

Diluted earnings  per common share

 

$

0.74 

 

$

0.46 

Class B Common Stock

 

 

 

 

 

 

Basic earnings  per common share

 

$

0.69 

 

$

0.43 

Diluted earnings  per common share

 

$

0.69 

 

$

0.43 

Cash dividends per common share

 

 

 

 

 

 

Class A Common Stock

 

$

0.165 

 

$

0.165 

Class B Common Stock

 

$

0.150 

 

$

0.150 





See notes to unaudited condensed consolidated financial statements.

4

 


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

 





 

 

 

 

 

 



 

 

 

 

 

 



 

Six Months Ended



 

March 30,

 

March 31,



 

2019

 

2018



 

 

 

 

 

 

Net sales

 

$

2,063,680,587 

 

$

1,998,348,252 

Cost of goods sold

 

  

1,560,969,126 

 

  

1,518,500,980 

Gross profit

 

  

502,711,461 

 

  

479,847,272 

Operating and administrative expenses

 

  

435,151,046 

 

  

420,470,090 

Gain from sale or disposal of assets

 

  

2,649,113 

 

  

65,493 

Income from operations

 

  

70,209,528 

 

  

59,442,675 

Other income, net

 

  

1,343,373 

 

  

1,818,439 

Interest expense

 

  

24,208,524 

 

  

23,664,587 

Income before income taxes

 

  

47,344,377 

 

  

37,596,527 

Income tax expense (benefit)

 

  

10,192,000 

 

 

(16,845,000)

Net income

 

$

37,152,377 

 

$

54,441,527 



 

  

 

 

  

 

Other comprehensive (expense) income:

 

 

 

 

 

 

Change in fair value of interest rate swap

 

$

(154,727)

 

$

 —

Income tax benefit

 

 

35,618 

 

 

 —

Other comprehensive (expense) income, net of tax

 

 

(119,109)

 

 

 —

Comprehensive income

 

$

37,033,268 

 

$

54,441,527 



 

  

 

 

  

 

Per share amounts:

 

  

 

 

  

 

Class A Common Stock

 

 

 

 

 

 

Basic earnings per common share

 

$

1.88 

 

$

2.76 

Diluted earnings per common share

 

$

1.83 

 

$

2.69 

Class B Common Stock

 

 

 

 

 

 

Basic earnings per common share

 

$

1.71 

 

$

2.51 

Diluted earnings per common share

 

$

1.71 

 

$

2.51 

Cash dividends per common share

 

 

 

 

 

 

Class A Common Stock

 

$

0.33 

 

$

0.33 

Class B Common Stock

 

$

0.30 

 

$

0.30 





See notes to unaudited condensed consolidated financial statements.



5

 


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

 

SIX MONTHS ENDED MARCH 30, 2019 AND MARCH 31, 2018 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Paid-in

  

Accumulated

  

 

 

 

 

 



 

Class A

 

Class B

 

Capital in

 

Other

 

 

 

 

 

 



 

Common Stock

 

Common Stock

 

Excess of

 

Comprehensive

 

Retained

 

 

 



  

Shares

  

Amount

 

Shares

 

Amount

 

Par Value

  

Income

  

Earnings

 

Total



  

 

  

 

 

 

 

 

 

 

 

 

 

  

 

 

  

 

 

 

 

 

Balance, September 30, 2017

 

14,084,044 

  

$

704,202 

 

6,175,732 

 

$

308,787 

 

$

12,311,249 

 

$

 —

 

$

497,727,765 

 

$

511,052,003 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

45,146,740 

 

 

45,146,740 

Cash dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3,250,228)

 

 

(3,250,228)

Common stock conversions

 

34,200 

 

 

1,710 

 

(34,200)

 

 

(1,710)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Balance, December 30, 2017

 

14,118,244 

 

$

705,912 

 

6,141,532 

 

$

307,077 

 

$

12,311,249 

 

$

 —

 

$

539,624,277 

 

$

552,948,515 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

9,294,788 

 

 

9,294,788 

Cash dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3,250,742)

 

 

(3,250,742)

Common stock conversions

 

7,800 

 

 

390 

 

(7,800)

 

 

(390)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Balance, March 31, 2018

 

14,126,044 

 

$

706,302 

 

6,133,732 

 

$

306,687 

 

$

12,311,249 

 

$

 —

 

$

545,668,323 

 

$

558,992,561 

Balance, September 29, 2018

 

14,145,385 

  

$

707,269 

 

6,114,391 

 

$

305,720 

 

$

12,311,249 

 

$

 —

 

$

582,089,570 

 

$

595,413,808 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

22,152,337 

 

 

22,152,337 

Other comprehensive (expense) income, net of income tax

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

340,339 

 

 

 —

 

 

340,339 

Cash dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3,251,148)

 

 

(3,251,148)

Common stock conversions

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Balance, December 29, 2018

 

14,145,385 

 

$

707,269 

 

6,114,391 

 

$

305,720 

 

$

12,311,249 

 

$

340,339 

 

$

600,990,759 

 

$

614,655,336 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

15,000,040 

 

 

15,000,040 

Other comprehensive (expense) income, net of income tax

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(459,448)

 

 

 —

 

 

(459,448)

Cash dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3,251,152)

 

 

(3,251,152)

Common stock conversions

 

31,950 

 

 

1,598 

 

(31,950)

 

 

(1,598)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Balance, March 30, 2019

 

14,177,335 

 

$

708,867 

 

6,082,441 

 

$

304,122 

 

$

12,311,249 

 

$

(119,109)

 

$

612,739,647 

 

$

625,944,776 





See notes to unaudited condensed consolidated financial statements.

6

 


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)  





 

 

 

 

 

 



  

 

 

 

 

 



 

Six Months Ended



  

March 30,

 

March 31,



 

2019

 

2018

Cash Flows from Operating Activities:

  

 

 

 

 

 

Net income

  

$

37,152,377 

 

$

54,441,527 

Adjustments to reconcile net income to net cash provided by operating activities:

  

 

 

 

 

 

Depreciation and amortization expense

 

 

55,607,103 

 

 

56,209,696 

Gain from sale or disposal of assets

 

 

(2,649,113)

 

 

(65,493)

Receipt of advance payments on purchases contracts

  

 

1,000,000 

 

 

1,170,000 

Recognition of advance payments on purchases contracts

  

 

(1,265,788)

 

 

(998,075)

Deferred income taxes

  

 

7,141,000 

 

 

(22,995,000)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Receivables

  

 

(3,531,623)

 

 

(7,397,619)

Inventory

  

 

6,440,232 

 

 

(9,498,849)

Other assets

 

 

16,359,326 

 

 

(10,272,641)

Accounts payable and accrued expenses

 

 

(8,041,671)

 

 

7,211,031 

Net Cash Provided by Operating Activities

  

 

108,211,843 

 

 

67,804,577 

Cash Flows from Investing Activities:

  

 

 

 

 

 

Proceeds from sales of property and equipment

  

 

7,283,055 

 

 

93,811 

Capital expenditures

  

 

(94,219,647)

 

 

(88,821,335)

Net Cash Used by Investing Activities

  

 

(86,936,592)

 

 

(88,727,524)

Cash Flows from Financing Activities:

  

 

 

 

 

 

Proceeds from short-term borrowings

 

 

300,186,059 

 

 

291,840,172 

Payments on short-term borrowings

 

 

(299,504,655)

 

 

(272,660,862)

Principal payments on long-term borrowings

  

 

(9,310,958)

 

 

(8,736,518)

Dividends paid

  

 

(6,502,300)

 

 

(6,500,969)

Net Cash (Used) Provided by Financing Activities

  

 

(15,131,854)

 

 

3,941,823 

Net Increase (Decrease) in Cash and Cash Equivalents

  

 

6,143,397 

 

 

(16,981,124)

Cash and cash equivalents at beginning of period

  

 

10,537,303 

 

 

23,912,100 

Cash and Cash Equivalents at End of Period

  

$

16,680,700 

 

$

6,930,976 





See notes to unaudited condensed consolidated financial statements.

7

 


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES

 

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS 

Six Months Ended March 30, 2019 and March 31, 2018 

 

A. BASIS OF PREPARATION



In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the financial position of Ingles Markets, Incorporated and Subsidiaries (the Company)  as of March 30, 2019, the results of operations for the three-month and six-month periods ended March 30, 2019 and March 31, 2018, and the changes in stockholders’ equity and cash flows for the six-month periods ended March 30, 2019 and March 31, 2018. The adjustments made are of a normal recurring nature. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. It is suggested that these unaudited interim financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended September 29, 2018 filed by the Company under the Securities Exchange Act of 1934 on December 7, 2018.  

 

The results of operations for the three-month and six-month periods ended March 30, 2019 are not necessarily indicative of the results to be expected for the full fiscal year.



B. NEW ACCOUNTING PRONOUNCEMENTS

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ASU 2016-02 “Leases” (ASU 2016-02).  ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases.  This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The Company will adopt the standard in the first quarter of fiscal 2020. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.



In May 2014, the FASB issued Accounting Standards Update ASU 2014-09 “Revenue from Contracts with Customers” (ASU 2014-09).  ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of the ASU to fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, with early adoption permitted.  The Company adopted the standard at the beginning of the current fiscal year, and determined the impact of adopting the new guidance was immaterial to its annual and interim financial statements.  The Company’s assessment included a detailed review of contracts for each of its disaggregated revenue streams and a comparison of its historical accounting policies and practices to the new standard.



C. ALLOWANCE FOR DOUBTFUL ACCOUNTS



Receivables are presented net of an allowance for doubtful accounts of $104,409 at March 30, 2019 and  $433,000 at September 29, 2018.  



D.  INCOME TAXES



The Company’s effective tax rate differs from the federal statutory rate primarily as a result of state income taxes and tax credits.



In December 2017, the Tax Cuts and Jobs Act (the “Tax Act”) became law.  Among other things, the Tax Act reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018, and allowed full expensing of qualified property when placed into service.



For the fiscal years ended September 28, 2019 and September 29, 2018 the Company has a blended federal corporate tax rate of 21.0% and 24.5%, respectively, based on the effective date of the tax rate reduction.  As a result of the decrease in the federal rate, the Company recorded in the fiscal quarter ended December 30, 2017 a decrease in its net deferred tax liabilities of $26.7 million, with a corresponding reduction to deferred income tax expense. 



The Company has unrecognized tax benefits and could incur interest and penalties related to uncertain tax positions. These amounts are insignificant and are not expected to significantly increase or decrease within the next twelve months.







8

 


 

E. ACCRUED EXPENSES AND CURRENT PORTION OF OTHER LONG-TERM LIABILITIES

 

Accrued expenses and current portion of other long-term liabilities consist of the following:

 



 

 

 

 

 

 



 

 

 

 

 

 



  

March 30,

 

September 29,



 

2019

 

2018

Property, payroll and other taxes payable

  

$

14,389,387 

 

$

22,327,253 

Salaries, wages and bonuses payable

  

 

26,813,446 

 

  

29,583,266 

Self-insurance liabilities

  

 

13,378,097 

 

  

13,576,329 

Interest payable

 

 

13,405,553 

 

 

13,397,615 

Other

  

 

4,718,705 

 

  

3,240,303 



 

$

72,705,188 

 

$

82,124,766 



Self-insurance liabilities are established for general liability claims, workers’ compensation and employee group medical and dental benefits based on claims filed and estimates of claims incurred but not reported. The Company is insured for covered costs in excess of $750,000 per occurrence for workers’ compensation, $500,000 for general liability and $450,000 per covered person for medical care benefits for a policy year.  The Company’s self-insurance reserves totaled $33.7 million at March 30, 2019 and  $34.7 million at September 29, 2018, respectively.  Of this amount, $13.4 million is accounted for as a current liability and $20.3 million as a long-term liability, which is inclusive of $3.9 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable at March 30, 2019. As of September 29, 2018, $13.6 million was accounted for as a current liability and $21.1 million as a long-term liability, which is inclusive of $4.6 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable.  Employee insurance expense, including workers’ compensation and medical care benefits, net of employee contributions, totaled $9.4 million and $10.4 million for the three-month periods ended March 30, 2019 and March 31, 2018, respectively. For the six-month periods ended March 30, 2019 and March 31, 2018, employee insurance expense, net of employee contributions, totaled $19.6 million and $19.0 million, respectively.



The Company’s fuel operations contain underground tanks for the storage of gasoline and diesel fuel.  The Company reviewed FASB Accounting Standards Codification Topic ASC 410 (“FASB ASC 410”) and determined we have a legal obligation to remove the tanks at a point in the future and accordingly determined we have met the requirements of an asset retirement obligation.  The Company followed FASB Topic ASC 410 model for determining the asset retirement cost and asset retirement obligation.  The amounts recorded are immaterial for each fuel center as well as in the aggregate at March 30, 2019 and September 29, 2018.



F. LONG-TERM DEBT

 

In June 2013, the Company issued $700.0 million aggregate principal amount of senior notes due in 2023 (the “Notes”) in a private placement.  The Notes bear an interest rate of 5.75% per annum and were issued at par.



The Company may redeem all or a portion of the Notes at any time on or after June 15, 2018 at the following redemption prices (expressed as percentages of the principal amount), if redeemed during the 12-month period beginning June 15 of the years indicated below:





 



 

Year

 

2018

102.875%

2019

101.917%

2020

100.958%

2021 and thereafter

100.000%



The Company has a $175.0 million line of credit (the “Line”) that matures in September 2022.  The Line provides the Company with various interest rate options based on the prime rate, the Federal Funds Rate, or the London Interbank Offering Rate (“LIBOR”). The Line allows the Company to issue up to $20.0 million in unused letters of credit, of which $9.0 million of unused letters of credit were issued at March 30, 2019.  The Company is not required to maintain compensating balances in connection with the Line.  At March 30, 2019, the Company had $0.7 million of borrowings outstanding under the Line.



In December 2010, the Company completed the funding of $99.7 million of Recovery Zone Facility Bonds (the “Bonds”) for construction of new warehouse and distribution space in Buncombe County, North Carolina (the “Project”). The final maturity date of the Bonds is January 1, 2036.



Under a Continuing Covenant and Collateral Agency Agreement (the “Covenant Agreement”) between the financial institutions and the Company, the financial institutions would hold the Bonds until September 26, 2026, subject to certain events.   Mandatory redemption of the Bonds by the Company in the annual amount of $4.5 million began on January 1, 2014.  The Company may redeem the Bonds without penalty or premium at any time prior to September 26, 2026.

 

9

 


 

Interest earned by bondholders on the Bonds is exempt from Federal and North Carolina income taxation.  The interest rate on the Bonds is equal to one month LIBOR (adjusted monthly) plus a credit spread, adjusted to reflect the income tax exemption.



The Company’s obligation to repay the Bonds is collateralized by the Project.  Additional collateral was required in order to meet certain loan to value criteria in the Covenant Agreement.  The Covenant Agreement incorporates substantially all financial covenants included in the Line.  



The Company has an interest rate swap agreement for a current notional amount of $51.5 million at a fixed rate of 3.92%.  Under this agreement, the Company pays monthly the fixed rate of 3.92% and receives the one-month LIBOR plus 1.65%.  The interest rate swap effectively hedges floating rate debt in the same amount as the current notional amount of the interest swap.  Both the floating rate debt and the interest rate swap have monthly principal amortization of $0.5 million and mature October 1, 2027. 



The Company recognizes differences between the variable rate interest payments and the fixed interest rate settlements with the swap counterparties as an adjustment to interest expense each period over the life of the swap.  The Company has designated the swap as a cash flow hedge and records the changes in the estimated fair value of the swap to other comprehensive income each period.  For the three- and six-month periods ended March 30, 2019 the Company recorded $0.5 million and $0.1 million of other comprehensive expense, respectively, net of income taxes, in its Consolidated Statements of Comprehensive income.  Unrealized losses of $0.1 million are recorded as a liability at fair value in the line “Other Long Term Liabilities” on the Consolidated Balance Sheet as of March 30, 2019.



The Notes, the Bonds and the Line contain provisions that under certain circumstances would permit lending institutions to terminate or withdraw their respective extensions of credit to the Company. Included among the triggering factors permitting the termination or withdrawal of the Line to the Company are certain events of default, including both monetary and non-monetary defaults, the initiation of bankruptcy or insolvency proceedings, and the failure of the Company to meet certain financial covenants designated in its respective loan documents. The Company was in compliance with all financial covenants related to its borrowings at March 30, 2019.  



The Company’s long-term debt agreements generally have cross-default provisions which could result in the acceleration of payments due under the Company’s Line, Bonds and Notes indenture in the event of default under any one instrument.



At March 30, 2019, property and equipment with an undepreciated cost of approximately $202 million was pledged as collateral for long-term debt. Long-term debt and Line agreements contain various restrictive covenants requiring, among other things, minimum levels of net worth and maintenance of certain financial ratios. At March 30, 2019, the Company had excess net worth totaling $126 million calculated under covenants in the Notes, the Bonds, and the Line.  This amount is available to pay dividends; however, certain loan agreements containing provisions outlining minimum tangible net worth requirements restrict the ability of the Company to pay cash dividends in excess of the current annual per share dividends paid on the Company’s Class A and Class B Common Stock. Further, the Company is prevented from paying cash dividends at any time that it is in default under the indenture governing the Notes. In addition, the terms of the indenture may restrict the ability of the Company to pay additional cash dividends based on certain financial parameters.



G. DIVIDENDS



The Company paid cash dividends of $0.165 for each share of Class A Common Stock and $0.15 for each share of Class B Common Stock on October 18, 2018 to stockholders of record on October 11, 2018



The Company paid cash dividends of $0.165 for each share of Class A Common Stock and $0.15 for each share of Class B Common Stock on January 17, 2019 to stockholders of record on January 10,  2019.  



For additional information regarding the dividend rights of the Class A Common Stock and Class B Common Stock, please see Note 8, “Stockholders’ Equity” to the Consolidated Financial Statements of the Annual Report on Form 10-K filed by the Company under the Securities Exchange Act of 1934 on December 7,  2018.



H. EARNINGS PER COMMON SHARE



The Company has two classes of common stock:  Class A, which is publicly traded, and Class B, which has no public market.  The Class B Common Stock has restrictions on transfer; however, each share is convertible into one share of Class A Common Stock at any time.  Each share of Class A Common Stock has one vote per share and each share of Class B Common Stock has ten votes per share.  Each share of Class A Common Stock is entitled to receive cash dividends equal to 110% of any cash dividend paid on Class B Common Stock. 



The Company calculates earnings per share using the two-class method in accordance with FASB ASC Topic 260. 



10

 


 

The two-class method of computing basic earnings per share for each period reflects the cash dividends paid per share for each class of stock, plus the amount of allocated undistributed earnings per share computed using the participation percentage which reflects the dividend rights of each class of stock.  Diluted earnings per share is calculated assuming conversion of all shares of Class B Common Stock to shares of Class A Common Stock on a share-for-share basis.  The tables below reconcile the numerators and denominators of basic and diluted earnings per share for current and prior periods.







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

March 30, 2019

 

March 30, 2019



 

Class A

 

Class B

 

Class A

 

Class B

Numerator: Allocated net income

 

 

               

 

 

 

 

 

 

 

 

 

Net income allocated, basic

 

$

10,773,567 

 

$

4,226,473 

 

$

26,678,194 

 

$

10,474,183 

Conversion of Class B to Class A shares

 

  

4,226,473 

 

 

 —

 

 

10,474,183 

 

 

 —

Net income allocated, diluted

 

$

15,000,040 

 

$

4,226,473 

 

$

37,152,377 

 

$

10,474,183 



 

  

 

 

 

 

 

 

 

 

 

 

Denominator: Weighted average shares outstanding

 

  

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

  

14,154,424 

 

 

6,105,352 

 

 

14,149,904 

 

 

6,109,872 

Conversion of Class B to Class A shares

 

  

6,105,352 

 

 

 —

 

 

6,109,872 

 

 

 —

Weighted average shares outstanding, diluted

 

  

20,259,776 

 

 

6,105,352 

 

 

20,259,776 

 

 

6,109,872 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.76 

 

$

0.69 

 

$

1.88 

 

$

1.71 

Diluted

 

$

0.74 

 

$

0.69 

 

$

1.83 

 

$

1.71 



The per share amounts for the second quarter of fiscal 2018 and the six months ended March 31, 2018 are based on the following amounts:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

  Three Months Ended

 

Six Months Ended



 

March 31, 2018

 

March 31, 2018



 

Class A

 

Class B

 

Class A

 

Class B

Numerator: Allocated net income

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) allocated, basic

 

$

6,661,301 

 

$

2,633,487 

 

$

38,993,337 

 

$

15,448,190 

Conversion of Class B to Class A shares

 

  

2,633,487 

 

 

 —

 

 

15,448,190 

 

 

 —

Net income (loss) allocated, diluted

 

$

9,294,788 

 

$

2,633,487 

 

$

54,441,527 

 

$

15,448,190 



 

  

 

 

 

 

 

 

 

 

 

 

Denominator: Weighted average shares outstanding

 

  

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

  

14,120,232 

 

 

6,139,544 

 

 

14,111,787 

 

 

6,147,989 

Conversion of Class B to Class A shares

 

  

6,139,544 

 

 

 —

 

 

6,147,989 

 

 

 —

Weighted average shares outstanding, diluted

 

  

20,259,776 

 

 

6,139,544 

 

 

20,259,776 

 

 

6,147,989 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.47 

 

$

0.43 

 

$

2.76 

 

$

2.51 

Diluted

 

$

0.46 

 

$

0.43 

 

$

2.69 

 

$

2.51 





11

 


 









I. SEGMENT INFORMATION

 

The Company operates one primary business segment, retail grocery sales.   The “Other” activities include fluid dairy and shopping center rentals.  Information about the Company’s operations by lines of business (amounts in thousands) is as follows: 







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Six Months Ended



March 30,

  

March 31,

 

March 30,

  

March 31,



2019

 

2018

 

2019

 

2018

Revenues from unaffiliated customers:

 

 

  

 

 

 

 

 

  

 

 

Grocery

$

351,558 

 

$

348,883 

 

$

727,197 

 

$

712,208 

Non-foods

 

223,067 

 

 

208,414 

 

 

455,564 

 

 

426,159 

Perishables

 

267,565 

 

 

261,385 

 

 

542,960 

 

 

526,679 

Gasoline

 

127,985 

 

 

136,538 

 

 

274,496 

 

 

273,213 

 Total retail

 

970,175 

  

 

955,220 

 

 

2,000,217 

  

 

1,938,259 

Other

 

31,669 

  

 

29,342 

 

 

63,464 

  

 

60,089 

Total revenues from unaffiliated customers

$

1,001,844 

  

$

984,562 

 

$

2,063,681 

  

$

1,998,348 



 

 

  

 

 

 

 

 

  

 

 

Income from operations:

 

 

  

 

 

 

 

 

  

 

 

Retail

$

26,434 

  

$

20,385 

 

$

62,051 

  

$

53,288 

Other

 

4,312 

  

 

3,169 

 

 

8,159 

  

 

6,155 

Total income from operations

$

30,746 

  

$

23,554 

 

$

70,210 

  

$

59,443 







 

 

 

 

 

 



 

 

 

 

 

 



  

March 30,

 

September 29,



 

2019

 

2018

Assets:

  

 

 

 

 

 

Retail

  

$

1,665,344 

 

$

1,679,301 

Other

  

 

178,700 

 

 

147,988 

Elimination of intercompany receivable

  

 

(1,546)

 

 

(2,378)

Total assets

  

$

1,842,498 

 

$

1,824,911 

 

The grocery category includes grocery, dairy, and frozen foods.

The non-foods category includes alcoholic beverages, tobacco, pharmacy and health/beauty/cosmetic products.

The perishables category includes meat, produce, deli and bakery.

 

For the three-month periods ended March 30, 2019 and March 31, 2018, respectively, the fluid dairy had $10.2 million and $10.1 million in sales to the retail grocery segment. The fluid dairy had $21.2 million and $21.4 million in sales to the retail grocery segment for the six-month periods ended March 30, 2019 and March 31, 2018, respectively. These sales have been eliminated in consolidation.



J. FAIR VALUES OF FINANCIAL INSTRUMENTS



The carrying amounts for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments.



The fair value of the Company’s debt is estimated using valuation techniques under the accounting guidance related to fair value measurements based on observable and unobservable inputs.  Observable inputs reflect readily available data from independent sources, while unobservable inputs reflect the Company’s market assumptions.  These inputs are classified into the following hierarchy:



Level 1 Inputs  –

Quoted prices for identical assets or liabilities in active markets.



 

Level 2 Inputs  –

Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.



 

Level 3 Inputs  –

Pricing inputs are unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities.  The inputs into the determination of fair value require significant management judgment or estimation.



12

 


 

The carrying amount and fair value of the Company’s debt, interest rate swap, and non-qualified plan assets at March 30, 2019 is as follows (in thousands):







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



  

Carrying

  

 

 

  

Fair Value



 

Amount

 

Fair Value

 

Measurements

Senior Notes

  

$

700,000 

  

$

713,125 

 

Level 2

Facility Bonds

  

 

72,560 

  

  

72,560 

 

Level 2

Secured notes payable and other

  

 

84,228 

  

  

84,228 

 

Level 2

Interest rate swap derivative contract liability

 

 

155 

 

 

155 

 

Level 2

Line of credit payable

 

 

681 

 

 

681 

 

Level 2

Non-qualified retirement plan assets

 

 

14,527 

 

 

14,527 

 

Level 2



The fair values for Level 2 measurements were determined primarily using market yields and taking into consideration the underlying terms of the debt.



K. COMMITMENTS AND CONTINGENCIES 



Various legal proceedings and claims arising in the ordinary course of business are pending against the Company.  In the opinion of management, the ultimate liability, if any, from all pending legal proceedings and claims will not materially affect the Company’s financial position, the results of its operations, or its cash flows.



Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 



Overview

 

Ingles, a leading supermarket chain in the Southeast, operates 200 supermarkets in North Carolina (72), Georgia (69), South Carolina (36), Tennessee (21), Virginia (1) and Alabama (1). The Company locates its supermarkets primarily in suburban areas, small towns and rural communities. Ingles supermarkets offer customers a wide variety of nationally advertised food products, including grocery, meat and dairy products, produce, frozen foods and other perishables and non-food products.  Non-food products include fuel centers, pharmacies, health and beauty care products and general merchandise, as well as quality private label itemsIn addition, the Company focuses on selling high-growth, high-margin products to its customers through the development of certified organic products, bakery departments and prepared foods including delicatessen sections.  As of March 30, 2019, the Company operated 108 in-store pharmacies and 102 fuel centers. 



Ingles also operates a fluid dairy and earns shopping center rentals. The fluid dairy processing operation sells approximately 27%  of its products to the retail grocery segment and approximately 73%  of its products to third parties. Real estate ownership is an important component of the Company’s operations, providing both operational and economic benefits. 

 

Critical Accounting Policies

 

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, and 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. Estimates are based on historical experience and other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Management estimates, by their nature, involve judgments regarding future uncertainties, and actual results may therefore differ materially from these estimates.

 

Self-Insurance

 

The Company is self-insured for workers’ compensation and group medical and dental benefits. Risks and uncertainties are associated with self-insurance; however, the Company has limited its exposure by maintaining excess liability coverage of $750,000 per occurrence for workers’ compensation, $500,000 for general liability, and $450,000 per covered person for medical care benefits for a policy year. Self-insurance liabilities are established based on claims filed and estimates of claims incurred but not reported. The estimates are based on data provided by the respective claims administrators. These estimates can fluctuate if historical trends are not predictive of the future. The majority of the Company’s properties are self-insured for casualty losses and business interruption; however, liability coverage is maintained.  At March 30, 2019,  the Company’s self-insurance reserves totaled $33.7 million.  Of this amount, $13.4 million is accounted for as a current liability and $20.3 million as a long-term liability, which is inclusive of $3.9 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable at March 30, 2019.



13

 


 

Asset Impairments

 

The Company accounts for the impairment of long-lived assets in accordance with FASB ASC Topic 360.  For assets to be held and used, the Company tests for impairment using undiscounted cash flows and calculates the amount of impairment using discounted cash flows. For assets held for sale, impairment is recognized based on the excess of remaining book value over expected recovery value. The recovery value is the fair value as determined by independent quotes or expected sales prices developed by internal associates. Estimates of future cash flows and expected sales prices are judgments based upon the Company’s experience and knowledge of local operations and cash flows that are projected for several years into the future. These estimates can fluctuate significantly due to changes in real estate market conditions, the economic environment, capital spending decisions and inflation.  The Company monitors the carrying value of long-lived assets for potential impairment each quarter based on whether any indicators of impairment have occurred.  There were no asset impairments during the six-month period ended March 30, 2019.

 

Vendor Allowances

 

The Company receives funds for a variety of merchandising activities from the many vendors whose products the Company buys for resale in its stores.  These incentives and allowances are primarily comprised of volume or purchase based incentives, advertising allowances, slotting fees, and promotional discounts. The purpose of these incentives and allowances is generally to help defray the costs incurred by the Company for stocking, advertising, promoting and selling the vendor’s products.  These allowances generally relate to short term arrangements with vendors, often relating to a period of a month or less, and are negotiated on a purchase-by-purchase or transaction-by-transaction basis.  Whenever possible, vendor discounts and allowances that relate to buying and merchandising activities are recorded as a component of item cost in inventory and recognized in merchandise costs when the item is sold.  Due to system constraints and the nature of certain allowances, it is sometimes not practicable to apply allowances to the item cost of inventory. In those instances, the allowances are applied as a reduction of merchandise costs using a rational and systematic methodology, which results in the recognition of these incentives when the inventory related to the vendor consideration received is sold.  Vendor allowances applied as a reduction of merchandise costs totaled $28.3 million and $30.4 million for the fiscal quarters ended March 30, 2019 and March 31, 2018, respectively.  For the six-month periods ended March 30, 2019 and March 31, 2018, vendor allowances applied as a reduction of merchandise costs totaled $57.3 million and $62.2 million, respectively.  Vendor advertising allowances that represent a reimbursement of specific identifiable incremental costs of advertising the vendor’s specific products are recorded as a reduction to the related expense in the period in which the related expense is incurred.  Vendor advertising allowances recorded as a reduction of advertising expense totaled $3.3 million and $3.5 million for the fiscal quarters ended March 30, 2019 and March 31, 2018, respectively.  For the six-month periods ended March 30, 2019 and March 31, 2018, vendor advertising allowances recorded as a reduction of advertising expense totaled $7.7 million and $7.5 million, respectively.



If vendor advertising allowances were substantially reduced or eliminated, the Company would likely consider other methods of advertising, as well as the volume and frequency of the Company’s product advertising, which could increase or decrease the Company’s expenditures.



Similarly, the Company is not able to assess the impact of vendor advertising allowances on creating additional revenue; as such allowances do not directly generate revenue for the Company’s stores.

 

Results of Operations

 

Ingles operates on a 52- or 53-week fiscal year ending on the last Saturday in September. There are 13 and 26  weeks of operations included in the Unaudited Condensed Consolidated Statements of Income for the three- and six-month periods ended March 30, 2019 and March 31, 2018, respectively. Comparable store sales are defined as sales by grocery stores in operation for five full fiscal quarters.  Sales from replacement stores, major remodels and the addition of fuel stations to existing stores are included in the comparable store sales calculation from the date thereof. A replacement store is a new store that is opened to replace an existing nearby store that is closed. A major remodel entails substantial remodeling of an existing store and includes additional retail square footage. For both the three- and six-month periods ended March 30, 2019 and March 31, 2018, comparable store sales include 197 stores.

 

14

 


 

The following table sets forth, for the periods indicated, selected financial information as a percentage of net sales. For information regarding the various segments of the business, see Note I “Segment Information” to the Unaudited Condensed Consolidated Financial Statements.

 





 

 

 

 

 

 

 

 

 

 

 

 



  

Three Months Ended

  

Six Months Ended



  

March 30,

 

March 31,

  

March 30,

 

March 31,



 

2019

 

2018

 

2019

 

2018

Net sales

  

100.0 

%

 

100.0 

%

  

100.0 

%

 

100.0 

%

Gross profit

  

24.4 

%

 

23.9 

%

  

24.4 

%

 

24.0 

%

Operating and administrative expenses

  

21.6 

%

 

21.5 

%

  

21.1 

%

 

21.0 

%

Gain from sale or disposal of assets

 

0.3 

%

 

 —

%

 

0.1 

%

 

 —

%

Income from operations

  

3.1 

%

 

2.4 

%

  

3.4 

%

 

3.0 

%

Other income, net

  

 —

%

 

 —

%

  

0.1 

%

 

0.1 

%

Interest expense

  

1.2 

%

 

1.2 

%

  

1.2 

%

 

1.2 

%

Income tax expense (benefit)

  

0.4 

%

 

0.3 

%

  

0.5 

%

 

(0.8)

%

Net income

  

1.5 

%

 

0.9 

%

  

1.8 

%

 

2.7 

%

 

Three Months Ended March 30, 2019 Compared to the Three Months Ended March 31, 2018



Net income for the second quarter of fiscal 2019 totaled $15.0 million, compared with net income of $9.3 million earned for the second quarter of fiscal 2018Easter occurred in March 2018, which provided increases in sales and gross profit for the second fiscal quarter of last year.  This year, Easter occurs in April 2019, so the positive sales and gross profit impact will benefit the upcoming third quarter of the current fiscal year.  Retail dollar sales and gross profit (both excluding gasoline) increased during the current quarter compared with the same quarter of last year, despite the positive Easter impact on last year’s results.  The current quarter also had the benefit of a gain on the sale of a former store property.  These positive factors were greater than an increase in operating expenses.    



Net Sales. Net sales increased by $17.3 million, or 1.8% to $1.00 billion for the three months ended March 30, 2019 from $984.6 million for  the three months ended March 31, 2018Retail comparable store sales excluding gasoline and the impact of Easter increased 3.4%.  Gasoline gallons sold increased 1.0% , while the average sales price per gallon decreased 7.2%.  Comparing the second quarters of fiscal year 2019 and 2018 (and excluding gasoline), the number of customer transactions increased 0.5%  and the average transaction size increased 2.3%.    



Ingles operated 200 stores at March 30, 2019 and 201 stores at March 31, 2018Retail square feet totaled 11.3 million square feet at March 30, 2019 and 11.4 million square feet at March 31, 2018.  During the last twelve months the Company opened two stores and closed three stores, including the redevelopment of a  store closed in fiscal year 2018 that will reopen later in fiscal year 2019.



Sales by product category (amounts in thousands) are as follows:









 

 

 

 

 

 



  

Three Months Ended



  

March 30,

  

March 31,



 

2019

 

2018

Grocery

  

$

351,558 

  

$

348,883 

Non-foods

  

 

223,067 

  

 

208,414 

Perishables

 

 

267,565 

 

 

261,385 

Gasoline

  

 

127,985 

  

 

136,538 

Total retail grocery

  

$

970,175 

  

$

955,220 



The grocery category includes grocery, dairy and frozen foods.

The non-foods category includes alcoholic beverages, tobacco, pharmacy and health/beauty/cosmetic products.

The perishables category includes meat, produce, deli and bakery.



15

 


 

Changes in retail sales for the quarter ended March 30, 2019 are summarized as follows (in thousands):









 

 

 

Total retail grocery sales for the three months ended March 31, 2018

  

$

955,220 

Comparable store sales increase (including gasoline)

  

 

12,892 

Effect of Easter in second quarter of fiscal 2018

 

 

(6,495)

Impact of stores opened in fiscal 2018 and 2019

  

 

4,379 

Impact of stores closed in fiscal 2018

  

 

(3,537)

Other

 

 

7,716 

Total retail grocery sales for the three months ended March 30, 2019

  

$

970,175 

 

Gross Profit. Gross profit for the three-month period ended March 30, 2019 increased $9.1 million, or 3.9%, to $244.3 million, or 24.4% of sales, compared with gross profit of $235.2 million, or 23.9% of sales, for the three-month period ended March 31, 2018.

 

Excluding gasoline sales, retail grocery segment gross profit as a percentage of sales increased 22 basis points comparing the second quarter of fiscal 2019 with the same fiscal 2018 period.  Gasoline gross profit dollars were higher for the quarter ended March 30, 2019, compared with the quarter ended March 31, 2018. 



In addition to the direct product cost, the cost of goods sold line item for the grocery segment includes inbound freight charges and the costs related to the Company’s distribution network.  The fluid dairy is a manufacturing process; therefore, the costs mentioned above as well as purchasing, production costs, and internal transfer costs incurred by the fluid dairy processing operation are included in the cost of goods sold line item, while these items are included in operating and administrative expenses in the grocery segment.

  

Operating and Administrative Expenses. Operating and administrative expenses increased $4.8 million, or 2.3%, to $216.5  million for the three months ended March 30, 2019, from $211.6 million for the three months ended March 31, 2018.  As a percentage of sales, operating and administrative expenses were  21.6%  for the three months ended March 30, 2019 and 21.5% for the three months ended March 31, 2018.  Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were 24.5% of sales for the second fiscal 2019 quarter and 24.7% for the second fiscal 2018 quarter.



The major increases in operating and administrative expenses were as follows: