Company Quick10K Filing
Village Super Market
Price1.00 EPS-21,837,000
Shares-0 P/E-0
MCap-0 P/FCF-0
Net Debt50 EBIT35
TEV50 TEV/EBIT1
TTM 2019-10-26, in MM, except price, ratios
10-Q 2020-04-25 Filed 2020-06-04
10-Q 2020-01-25 Filed 2020-03-05
10-Q 2019-10-26 Filed 2019-12-05
10-K 2019-07-27 Filed 2019-10-10
10-Q 2019-04-27 Filed 2019-06-04
10-Q 2019-01-26 Filed 2019-03-06
10-Q 2018-10-27 Filed 2018-12-06
10-K 2018-07-28 Filed 2018-10-11
10-Q 2018-04-28 Filed 2018-06-07
10-Q 2018-01-27 Filed 2018-03-08
10-Q 2017-10-28 Filed 2017-12-05
10-K 2017-07-29 Filed 2017-10-12
10-Q 2017-04-29 Filed 2017-06-07
10-Q 2017-01-28 Filed 2017-03-09
10-Q 2016-10-29 Filed 2016-12-07
10-K 2016-07-30 Filed 2016-10-12
10-Q 2016-04-23 Filed 2016-06-02
10-Q 2016-01-23 Filed 2016-03-02
10-Q 2015-10-24 Filed 2015-12-03
10-K 2015-07-25 Filed 2015-10-07
10-Q 2015-04-25 Filed 2015-06-03
10-Q 2015-01-24 Filed 2015-03-04
10-Q 2014-10-25 Filed 2014-12-03
10-K 2014-07-26 Filed 2014-10-08
10-Q 2014-04-26 Filed 2014-06-04
10-Q 2014-01-25 Filed 2014-03-04
10-Q 2013-10-26 Filed 2013-12-04
10-Q 2013-04-27 Filed 2013-06-05
10-Q 2013-01-26 Filed 2013-03-06
10-Q 2012-10-27 Filed 2012-12-05
10-K 2012-07-28 Filed 2012-10-09
10-Q 2012-04-28 Filed 2012-06-06
10-Q 2012-01-28 Filed 2012-03-07
10-Q 2011-10-29 Filed 2011-12-08
10-K 2011-07-30 Filed 2011-10-12
10-Q 2011-04-30 Filed 2011-06-09
10-Q 2011-01-29 Filed 2011-03-08
10-Q 2010-10-30 Filed 2010-12-08
10-K 2010-07-31 Filed 2010-10-12
10-Q 2010-04-24 Filed 2010-06-02
10-Q 2010-01-23 Filed 2010-03-03
8-K 2020-06-12
8-K 2020-05-20
8-K 2020-05-12
8-K 2020-04-24
8-K 2020-03-31
8-K 2020-03-13
8-K 2020-02-20
8-K 2019-12-13
8-K 2019-10-07
8-K 2019-09-16
8-K 2019-06-14
8-K 2019-03-15
8-K 2018-12-17
8-K 2018-12-14
8-K 2018-10-08
8-K 2018-09-14
8-K 2018-06-15
8-K 2018-03-16

VLGEA 10Q Quarterly Report

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 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 2C. Issuer Purchases of Equity Securities
EX-31.1 vlgea20200425ex-311.htm
EX-31.2 vlgea20200425ex-312.htm
EX-32.1 vlgea20200425ex-321.htm
EX-32.2 vlgea20200425ex-322.htm
EX-99.1 vlgea2020042510-qexhibit991.htm

Village Super Market Earnings 2020-04-25

Balance SheetIncome StatementCash Flow
58546835123411702012201420172020
Assets, Equity
44035026017080-102012201420172020
Rev, G Profit, Net Income
402612-2-16-302012201420172020
Ops, Inv, Fin

10-Q 1 vlgea2020042510-q.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 10-Q
(Mark One)
[x] 
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
 
 
For the quarterly period ended: April 25, 2020
 
 
OR
 
 
[ ]   
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
 
Commission File No. 0-2633

VILLAGE SUPER MARKET, INC.
(Exact name of registrant as specified in its charter)

NEW JERSEY
22-1576170
(State or other jurisdiction of incorporation or organization)
(I. R. S. Employer Identification No.)
 
 
733 MOUNTAIN AVENUE, SPRINGFIELD, NEW JERSEY
07081
(Address of principal executive offices)
(Zip Code)
 
 
(973) 467-2200
      
(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 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.

Large accelerated filer  q
Accelerated filer   x
Non-accelerated filer    q
 (Do not check if a smaller reporting company)
Smaller reporting company  x
 
 
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 each of the issuer's classes of common stock, as of the latest practicable date:
 
 
 
 
 
June 4, 2020
 
 
 
 
Class A Common Stock, No Par Value
10,243,990 Shares
 
Class B Common Stock, No Par Value
  4,293,748 Shares







VILLAGE SUPER MARKET, INC.

INDEX



PART I
  PAGE NO.
 
 
FINANCIAL INFORMATION
 
 
 
Item 1. Financial Statements (Unaudited)
 
 
 
Consolidated Balance Sheets
 
 
Consolidated Statements of Operations
 
 
Consolidated Statements of Comprehensive Income
 
 
Consolidated Statements of Shareholders' Equity
 
 
Consolidated Statements of Cash Flows
 
 
Notes to Consolidated Financial Statements
 
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3.  Quantitative & Qualitative Disclosures about Market Risk
 
 
Item 4.  Controls and Procedures
 
 
PART II
 
 
 
OTHER INFORMATION
 
 
 
Item 6.  Exhibits
 
 
Signatures


2



PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements
VILLAGE SUPER MARKET, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands) (Unaudited)
 
April 25,
2020
 
July 27,
2019
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
89,602

 
$
101,121

Merchandise inventories
32,613

 
38,503

Patronage dividend receivable
7,500

 
11,908

Income taxes receivable
19

 
43

Other current assets
15,853

 
17,206

Total current assets
145,587

 
168,781

 
 
 
 
Property, equipment and fixtures, net
230,886

 
224,890

Operating lease assets
94,838

 

Notes receivable from Wakefern
52,451

 
50,208

Investment in Wakefern
28,783

 
28,644

Goodwill
12,586

 
12,650

Other assets
24,965

 
17,116

 
 
 
 
Total assets
$
590,096

 
$
502,289

 
 

 
 

LIABILITIES AND SHAREHOLDERS' EQUITY
 

 
 

Current liabilities
 
 
 
Operating lease obligations
$
11,765

 
$

Finance lease obligations
452

 
1,022

Notes payable to Wakefern
141

 
43

Accounts payable to Wakefern
71,211

 
66,130

Accounts payable and accrued expenses
19,350

 
23,950

Accrued wages and benefits
19,277

 
20,259

Income taxes payable
2,324

 
1,070

Total current liabilities
124,520

 
112,474

 
 
 
 
Long-term debt
 
 
 
Operating lease obligations
95,418

 

Finance lease obligations
23,243

 
40,753

Notes payable to Wakefern
766

 
803

Notes payable related to New Markets Tax Credit
5,983

 
6,169

Total long-term debt
125,410

 
47,725

 
 
 
 
Pension liabilities
5,080

 
4,759

Other liabilities
8,078

 
18,659

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Shareholders' equity
 

 
 

Preferred stock, no par value: Authorized 10,000 shares, none issued

 

Class A common stock, no par value: Authorized 20,000 shares; issued 10,970 shares at April 25, 2020 and 10,593 shares at July 27, 2019
67,422

 
65,114

Class B common stock, no par value: Authorized 20,000 shares; issued and outstanding 4,294 shares at April 25, 2020 and July 27, 2019
697

 
697

Retained earnings
280,294

 
270,753

Accumulated other comprehensive loss
(7,466
)
 
(8,342
)
Less treasury stock, Class A, at cost: 726 shares at April 25, 2020 and 502 shares at July 27, 2019
(13,939
)
 
(9,550
)
Total shareholders’ equity
327,008

 
318,672

 
 
 
 
Total liabilities and shareholders’ equity
$
590,096

 
$
502,289

 

See accompanying Notes to Consolidated Financial Statements.

3



VILLAGE SUPER MARKET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts) (Unaudited)
 
13 Weeks Ended
 
39 Weeks Ended
 
April 25,
2020
 
April 27,
2019
 
April 25,
2020
 
April 27,
2019
Sales
$
458,292

 
$
395,458

 
$
1,303,116

 
$
1,225,137

 
 
 
 
 
 
 
 
Cost of sales
328,391

 
284,847

 
941,722

 
884,678

 
 
 
 
 
 
 
 
Gross profit
129,901

 
110,611

 
361,394

 
340,459

 
 
 
 
 
 
 
 
Operating and administrative expense
106,987

 
97,351

 
317,861

 
293,679

 
 
 
 
 
 
 
 
Depreciation and amortization
7,678

 
6,566

 
22,914

 
20,481

 
 
 
 
 
 
 
 
Operating income
15,236

 
6,694

 
20,619

 
26,299

 
 
 
 
 
 
 
 
Interest expense
(563
)
 
(1,106
)
 
(1,698
)
 
(3,334
)
 
 
 
 
 
 
 
 
Interest income
910

 
1,402

 
3,199

 
3,886

 
 
 
 
 
 
 
 
Income before income taxes
15,583

 
6,990

 
22,120

 
26,851

 
 
 
 
 
 
 
 
Income taxes
4,431

 
2,020

 
6,396

 
8,041

 
 
 
 
 
 
 
 
Net income
$
11,152

 
$
4,970

 
$
15,724

 
$
18,810

 
 
 
 
 
 
 
 
Net income per share:
 
 

 
 
 
 

Class A common stock:
 
 

 
 

 
 

Basic
$
0.86

 
$
0.39

 
$
1.22

 
$
1.46

Diluted
$
0.77

 
$
0.34

 
$
1.09

 
$
1.31

 
 
 
 
 
 
 
 
Class B common stock:
 
 
 

 
 

 
 

Basic
$
0.56

 
$
0.25

 
$
0.79

 
$
0.95

Diluted
$
0.56

 
$
0.25

 
$
0.79

 
$
0.95

 
See accompanying Notes to Consolidated Financial Statements.

4



VILLAGE SUPER MARKET, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands) (Unaudited)
 
13 Weeks Ended
 
39 Weeks Ended
 
April 25,
2020
 
April 27,
2019
 
April 25,
2020
 
April 27,
2019
Net income
$
11,152

 
$
4,970

 
$
15,724

 
$
18,810

 
 
 
 
 
 
 
 
Other comprehensive income:
 

 
 

 
 

 
 

Amortization of pension actuarial loss, net of tax (1)
100

 
102

 
303

 
306

Pension settlement loss, net of tax (2)
83

 
302

 
954

 
302

Pension remeasurement, net of tax (3)
323

 

 
(381
)
 

 
 
 
 
 
 
 
 
Comprehensive income
$
11,658

 
$
5,374

 
$
16,600

 
$
19,418


(1)
Amounts are net of tax of $44 and $43 for the 13 weeks ended April 25, 2020 and April 27, 2019, respectively, and $132 and $131 for the 39 weeks ended April 25, 2020 and April 27, 2019, respectively. All amounts are reclassified from Accumulated other comprehensive loss to Operating and administrative expense.
(2)
Amounts are net of tax of $33 and $129 for the 13 weeks ended April 25, 2020 and April 27, 2019, respectively, and $408 and $129 for the 39 weeks ended April 25, 2020 and April 27, 2019, respectively. All amounts are reclassified from accumulated other comprehensive loss to operating and administrative expense.
(3)
Amounts are net of tax of $139 and $164 for the 13 and 39 weeks ended April 25, 2020.



See accompanying Notes to Consolidated Financial Statements.

5



VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands) (Unaudited)
 
13 Weeks Ended April 25, 2020 and April 27, 2019
 
Class A
Common Stock
 
Class B
Common Stock
 
 
 
Accumulated
Other
Comprehensive
Income (Loss)

 
Treasury Stock
Class A
 
Total
Shareholders'
Equity

 
Shares Issued
 
Amount
 
Shares Issued
 
Amount
 
Retained Earnings
 
Shares
 
Amount
Balance, January 25, 2020
10,586

 
$
66,655

 
4,294

 
$
697

 
$
272,401

 
$
(7,972
)
 
513

 
$
(9,799
)
 
$
321,982

Net income

 

 

 

 
11,152

 

 

 

 
11,152

Other comprehensive income, net of tax of $216

 

 

 

 

 
506

 

 

 
506

Dividends

 

 

 

 
(3,259
)
 

 

 

 
(3,259
)
Treasury stock purchases

 

 

 

 

 

 
213

 
(4,140
)
 
(4,140
)
Restricted shares forfeited
(1
)
 
(19
)
 

 

 

 

 

 

 
(19
)
Share-based compensation expense
385

 
786

 

 

 

 

 

 

 
786

Balance, April 25, 2020
10,970

 
$
67,422

 
4,294

 
$
697

 
$
280,294

 
$
(7,466
)
 
726

 
$
(13,939
)
 
$
327,008

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 26, 2019
10,574

 
$
63,194

 
4,304

 
$
699

 
$
265,508

 
$
(7,981
)
 
524

 
$
(9,880
)
 
$
311,540

Net income

 

 

 

 
4,970

 

 

 

 
4,970

Other comprehensive income, net of tax of $172

 

 

 

 

 
404

 

 

 
404

Dividends

 

 

 

 
(3,222
)
 

 

 

 
(3,222
)
Exercise of stock options

 
337

 

 

 

 

 
(36
)
 
671

 
1,008

Share-based compensation expense
12

 
871

 

 

 

 

 

 

 
871

Conversion of Class B shares to Class A shares
10

 
2

 
(10
)
 
(2
)
 

 

 

 

 

Balance, April 27, 2019
10,596

 
$
64,404

 
4,294

 
$
697

 
$
267,256

 
$
(7,577
)
 
488

 
$
(9,209
)
 
$
315,571

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
39 Weeks Ended April 25, 2020 and April 27, 2019
 
Class A
Common Stock
 
Class B
Common Stock
 
 
 
Accumulated
Other
Comprehensive
Income (Loss)

 
Treasury Stock
Class A
 
Total
Shareholders'
Equity

 
Shares Issued
 
Amount
 
Shares Issued
 
Amount
 
Retained Earnings
 
Shares
 
Amount
Balance, July 27, 2019
10,593

 
$
65,114

 
4,294

 
$
697

 
$
270,753

 
$
(8,342
)
 
502

 
$
(9,550
)
 
$
318,672

Net income








15,724







 
15,724

Other comprehensive income, net of tax of $376










876





 
876

Dividends








(9,697
)






 
(9,697
)
Treasury stock purchases












224


(4,389
)
 
(4,389
)
Restricted shares forfeited
(10
)

(199
)












 
(199
)
Share-based compensation expense
387


2,507













 
2,507

Adjustment due to the adoption of ASU 2016-02, net of tax of $1,385

 

 

 

 
3,514

 

 

 

 
3,514

Balance, April 25, 2020
10,970

 
$
67,422

 
4,294

 
$
697

 
$
280,294

 
$
(7,466
)
 
726

 
$
(13,939
)
 
$
327,008

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, July 28, 2018
10,575

 
$
61,678

 
4,304

 
$
699

 
$
258,104

 
$
(8,185
)
 
496

 
$
(9,151
)
 
$
303,145

Net income








18,810







 
18,810

Other comprehensive income, net of tax of $260










608





 
608

Dividends








(9,658
)






 
(9,658
)
Exercise of stock options


337










(36
)

671

 
1,008

Treasury stock purchases












28


(729
)
 
(729
)
Restricted shares forfeited
(9
)

(127
)












 
(127
)
Share-based compensation expense
20


2,514













 
2,514

Conversion of Class B shares to Class A shares
10


2


(10
)

(2
)








 

Balance, April 27, 2019
10,596

 
$
64,404

 
4,294

 
$
697

 
$
267,256

 
$
(7,577
)
 
488

 
$
(9,209
)
 
$
315,571

 
See accompanying Notes to Consolidated Financial Statements.

6



VILLAGE SUPER MARKET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
 
39 Weeks Ended
 
April 25,
2020
 
April 27,
2019
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
15,724

 
$
18,810

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

Depreciation and amortization
22,914

 
20,481

Non-cash share-based compensation
2,308

 
2,387

Loss on pension settlements
1,362

 
431

Deferred taxes
983

 
(392
)
Provision to value inventories at LIFO
400

 
303

Gain on sale of assets
(1,252
)
 
(102
)
 
 
 
 
Changes in assets and liabilities:
 
 
 

Merchandise inventories
5,490

 
188

Patronage dividend receivable
4,408

 
3,575

Accounts payable to Wakefern
9,962

 
(2,132
)
Accounts payable and accrued expenses
(3,153
)
 
1,069

Accrued wages and benefits
(982
)
 
495

Income taxes receivable / payable
1,278

 
(2,394
)
Other assets and liabilities
(38
)
 
(2,950
)
Net cash provided by operating activities
59,404

 
39,769

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

Capital expenditures
(47,812
)
 
(18,815
)
Proceeds from the sale of assets
1,261

 
102

Investment in notes receivable from Wakefern
(2,243
)
 
(27,263
)
Maturity of notes receivable from Wakefern

 
24,937

Acquisition deposit in escrow
(7,600
)
 

Acquisition of Gourmet Garage, net of cash acquired
64

 

Net cash used in investing activities
(56,330
)
 
(21,039
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

Proceeds from exercise of stock options

 
1,008

Excess tax benefit related to share-based compensation

 
26

Principal payments of long-term debt
(507
)
 
(1,354
)
Dividends
(9,697
)
 
(9,658
)
Treasury stock purchases, including shares surrendered for withholding taxes
(4,389
)
 
(729
)
Net cash used in financing activities
(14,593
)
 
(10,707
)
 
 
 
 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(11,519
)
 
8,023

 
 
 
 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
101,121

 
96,108

 
 
 
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
89,602

 
$
104,131

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH  PAYMENTS MADE FOR:
 

 
 

Interest
$
1,698

 
$
3,334

Income taxes
$
4,132

 
$
10,790

 
 
 
 
NONCASH SUPPLEMENTAL DISCLOSURES:
 

 
 

Investment in Wakefern and increase in notes payable to Wakefern
$
93

 
$
838

 
See accompanying Notes to Consolidated Financial Statements.

7



VILLAGE SUPER MARKET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands) (Unaudited)


1. BASIS OF PRESENTATION and ACCOUNTING POLICIES

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly the consolidated financial position as of April 25, 2020 and the consolidated statements of operations, comprehensive income and cash flows for the 13 and 39 weeks ended April 25, 2020 and April 27, 2019 of Village Super Market, Inc. (“Village” or the “Company”).

The significant accounting policies followed by the Company, except as updated for the adoption of new lease guidance, are set forth in Note 1 to the Company's consolidated financial statements in the July 27, 2019 Village Super Market, Inc. Annual Report on Form 10-K, which should be read in conjunction with these financial statements.  The results of operations for the periods ended April 25, 2020 are not necessarily indicative of the results to be expected for the full year.

Recently adopted accounting standards

On July 28, 2019, the Company adopted ASU 2016-02, “Leases.” This guidance requires lessees to recognize lease liabilities and a right-of-use asset for all leases with terms of more than 12 months on the balance sheet.  The Company adopted the standard using the modified retrospective approach under which the cumulative effect of initially applying the standard was recognized as an adjustment to opening fiscal 2020 retained earnings, with no restatement of prior year amounts.  In addition, the Company applied the transition package of practical expedients permitted within the standard, which allowed the carryforward of historical lease classification, and applied the transition option which does not require application of the guidance to comparative periods in the year of adoption. 

The adoption of the standard resulted in the recognition of operating lease assets and operating lease liabilities of $99,415 and $111,139, respectively, as of the date of adoption. Included in the initial measurement of the new lease assets is the reclassification of certain prepaid and deferred rent balances. Additionally, the Company recorded an adjustment to reduce its opening retained earnings balance by $3,514, net of income taxes, as the Company derecognized the remaining financing obligations of $17,442 and related net assets of $12,543 for leases in which the Company was previously deemed to be the owner of the project for accounting purposes but did not qualify for sale-leaseback treatment. As such designation ended for these leases with adoption of the ASU, operating lease right-of-use asset and liability balances were established for these leases based on the Company's remaining fixed payment obligations under the leases and are included in the amounts described above. Accordingly, the fixed lease payments related to these leases will be recognized as an operating lease cost on a straight-line basis over the lease term, and eliminated depreciation and interest expense in the fiscal 2020 consolidated statement of operations. The Company recognized expense related to these leases in fiscal 2020 and 2019 as follows:
 
 
13 Weeks Ended
 
39 Weeks Ended
Consolidated Statement of Operations Classification
 
April 25,
2020
 
April 27,
2019
 
April 25,
2020
 
April 27,
2019
Operating and administrative expense
 
$
677

 
$

 
$
2,031

 
$

 
 
 
 
 
 
 
 
 
Depreciation and amortization
 

 
91

 

 
305

Interest expense
 

 
535

 

 
1,612

 
 
 
 
 
 
 
 
 
 
 
$
677

 
$
626

 
$
2,031

 
$
1,917

 
 
 
 
 
 
 
 
 
The adoption of this standard also resulted in a change in naming convention for leases classified historically as capital leases to finance leases. The adoption of the new standard did not have a material impact on the consolidated statement of cash flows. Additional information on leases is provided in Note 7.




8



2. MERCHANDISE INVENTORIES
    
At both April 25, 2020 and July 27, 2019, approximately 64% of merchandise inventories are valued by the LIFO method while the balance is valued by FIFO.  If the FIFO method had been used for the entire inventory, inventories would have been $14,912 and $14,512 higher than reported at April 25, 2020 and July 27, 2019, respectively.

3. NET INCOME PER SHARE

The Company has two classes of common stock. Class A common stock is entitled to cash dividends as declared 54% greater than those paid on Class B common stock. Shares of Class B common stock are convertible on a share-for-share basis for Class A common stock at any time.

The Company utilizes the two-class method of computing and presenting net income per share. The two-class method is 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, Class A common stock is assumed to receive a 54% greater participation in undistributed earnings than Class B common stock, in accordance with the classes' respective dividend rights. Unvested share-based payment awards that contain nonforfeitable rights to dividends are treated as participating securities and therefore included in computing net income per share using the two-class method.

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 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.


9



The tables below reconcile the numerators and denominators of basic and diluted net income per share for all periods presented.
 
 
13 Weeks Ended
 
39 Weeks Ended
 
April 25, 2020
 
April 25, 2020
 
Class A
 
Class B
 
Class A
 
Class B
Numerator:
 
 
 
 
 
 
 
Net income allocated, basic
$
8,431

 
$
2,398

 
$
11,892

 
$
3,390

Conversion of Class B to Class A shares
2,398

 

 
3,390

 

Effect of share-based compensation on allocated net income

 

 

 

Net income allocated, diluted
$
10,829

 
$
2,398

 
$
15,282

 
$
3,390

 
 
 
 
 
 
 
 
Denominator:
 

 
 

 
 

 
 

Weighted average shares outstanding, basic
9,789

 
4,294

 
9,775

 
4,294

Conversion of Class B to Class A shares
4,294

 

 
4,294

 

Weighted average shares outstanding, diluted
14,083

 
4,294

 
14,069

 
4,294

 
 
 
 
 
 
 
 
 
13 Weeks Ended
 
39 Weeks Ended
 
April 27, 2019
 
April 27, 2019
 
Class A
 
Class B
 
Class A
 
Class B
Numerator:
 

 
 

 
 

 
 

Net income allocated, basic
$
3,770

 
$
1,076

 
$
14,237

 
$
4,083

Conversion of Class B to Class A shares
1,076

 

 
4,083

 

Effect of share-based compensation on allocated net income
5

 
(1
)
 

 
(1
)
Net income allocated, diluted
$
4,851

 
$
1,075

 
$
18,320

 
$
4,082

 
 
 
 
 
 
 
 
Denominator:
 

 
 

 
 

 
 

Weighted average shares outstanding, basic
9,756

 
4,294

 
9,737

 
4,300

Conversion of Class B to Class A shares
4,294

 

 
4,300

 

Dilutive effect of share-based compensation
17

 

 

 

Weighted average shares outstanding, diluted
14,067

 
4,294

 
14,037

 
4,300


Outstanding stock options to purchase Class A shares of 159 and 163 were excluded from the calculation of diluted net income per share at April 25, 2020 and April 27, 2019, respectively, as a result of their anti-dilutive effect. In addition, 397 and 314 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 25, 2020 and April 27, 2019, respectively, due to their anti-dilutive effect.

4. PENSION PLANS

The Company sponsored four defined benefit pension plans in fiscal 2020 and 2019.  Net periodic pension cost for the four plans includes the following components:


10



 
13 Weeks Ended
 
39 Weeks Ended
 
April 25,
2020
 
April 27,
2019
 
April 25,
2020
 
April 27,
2019
Service cost
$
51

 
$
53

 
$
152

 
$
160

Interest cost on projected benefit obligations
512

 
655

 
1,643

 
1,964

Expected return on plan assets
(733
)
 
(721
)
 
(2,061
)
 
(2,162
)
Loss on settlement
116

 
431

 
1,362

 
431

Amortization of net losses
144

 
145

 
435

 
437

Net periodic pension cost
$
90

 
$
563

 
$
1,531

 
$
830

    
As of April 25, 2020, the Company has not made any contributions to its pension plans in fiscal 2020.  The Company expects contributions to its defined benefit pension plans to be immaterial in fiscal 2020.
On December 23, 2019, the Company terminated the Village Super Market, Inc. Retail Clerks Employees’ Retirement Plan. All participants of the plan were former employees of a store previously closed in 1994. An annuity contract totaling $1,302 was purchased with an insurance company for all participants who did not elect a lump sum distribution. Additionally, lump sum distributions related to the termination totaled $451. The plan had sufficient assets to satisfy all termination transaction obligations, and no benefit obligation or plan assets related to the Village Super Market, Inc. Retail Clerks Employees’ Retirement Plan remain as of April 25, 2020. As a result of this termination, the Company recognized a non-cash pre-tax settlement charge totaling $669 during the 13 weeks ended January 25, 2020. This settlement charge represents the plan’s remaining unrecognized losses within accumulated other comprehensive loss as of the termination date.
    
Additionally, the Company recognized a settlement loss of $116 and $693 in the 13 and 39 weeks ended April 25, 2020 and $431 in both the 13 and 39 weeks ended April 27, 2019 for a plan where benefits paid exceeded the sum of the service cost and interest cost components of net periodic pension cost. Assumptions used in the related remeasurement include a discount rate of 2.85% and long term expected rate of return on plan assets of 5.00%.


5. RELATED PARTY INFORMATION
 
A description of the Company’s transactions with Wakefern, its principal supplier, and with other related parties is included in the Company’s Annual Report on Form 10-K for the year ended July 27, 2019.  
        
Included in cash and cash equivalents at April 25, 2020 and July 27, 2019 are $60,770 and $73,879, respectively, of demand deposits invested at Wakefern at overnight money market rates.

There have been no other significant changes in the Company’s relationships or nature of transactions with related parties during the 39 weeks ended April 25, 2020.


6. COMMITMENTS and CONTINGENCIES

The Company is involved in other litigation incidental to the normal course of business. Company management is of the opinion that the ultimate resolution of these legal proceedings should not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company.

COVID-19

The Company operates in and around one of the epicenters of the COVID-19 health crisis with much of our trade area under stay-at-home orders since mid-March 2020. The Company is classified as an essential business and has remained open to serve our customers and the communities in which we operate. The continuing impact on our business, including the length and impact of stay-at-home orders and/or regional quarantines, labor shortages and employment trends, disruptions to supply chains, including our ability to obtain products from our suppliers, higher operating costs, the form and impact of economic stimulus and general overall economic instability, is uncertain at this time and could have a material adverse effect on our business, results of operations, financial condition and cash flows.



11




7. LEASES

The Company leases 27 retail stores, as well as the corporate headquarters and equipment at April 25, 2020. The majority of initial lease terms range from 20 to 30 years. Most of the Company’s leases contain renewal options at increased rents of five to ten years each at the Company’s sole discretion. These options enable Village to retain the use of facilities in desirable operating areas. Each renewal option is evaluated when recognizing the lease right-of-use assets and liabilities, and the Company utilizes the lease term for which it is reasonably certain to use the underlying asset. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company is obligated under all leases to pay for real estate taxes, utilities and liability insurance, and under certain leases to pay additional amounts based on maintenance and a percentage of sales in excess of stipulated amounts. The Company accounts for rent holidays, escalating rent provisions, and construction allowances on a straight-line basis over the term of the lease.

The composition of total lease cost is as follows:
 

 
13 Weeks Ended
 
39 Weeks Ended
 
Consolidated Statement of Operations Classification
 
April 25,
2020
 
April 25,
2020
Operating lease cost
Operating and administrative expense
 
$
4,393

 
$
13,597

Finance lease cost
 
 
 
 
 
Amortization of leased assets
Depreciation and amortization
 
237

 
710

Interest on lease liabilities
Interest expense
 
512

 
1,544

Variable lease cost
Operating and administrative expense
 
3,724

 
11,387

 
 
 
 
 
 
Total lease cost
 
 
$
8,866

 
$
27,238


As of April 25, 2020, finance lease right-of-use assets of $13,990 are included in Property, equipment and fixtures, net in the Company's Consolidated Balance Sheet. Maturities of operating and finance lease liabilities, including options to extend lease terms that are reasonably certain of being exercised, are as follows as of April 25, 2020:
 
 
Operating leases
 
Finance leases
 
Total
Remainder of 2020
 
$
4,946

 
$
672

 
$
5,618

2021
 
16,621

 
2,689

 
19,310

2022
 
15,739

 
2,689

 
18,428

2023
 
15,412

 
2,689

 
18,101

2024
 
13,276

 
2,689

 
15,965

Thereafter
 
79,385

 
24,428

 
103,813

Total lease payments
 
145,379

 
35,856

 
181,235

Less amount representing interest

 
38,196

 
12,161

 
50,357

 
 
 
 
 
 


Present value of lease liabilities
 
$
107,183

 
$
23,695

 
$
130,878


The Company has approximately $16,671 of future payment obligations related to lease agreements that have not yet commenced but have been executed as of April 25, 2020.
    
For purposes of measuring the present value of its fixed payment obligations for a given lease, the Company uses its incremental borrowing rate as the discount rate implicit within its leases is generally not determinable. The Company's incremental borrowing rate reflects the rate it would pay to borrow on a secured basis, and incorporates the term and economic environment of the lease. As of April 25, 2020, the Company's lease terms and discount rates are as follows:

12



 
April 25,
2020
Weighted-average remaining lease term (years)

Operating leases
11.7

Finance leases
15.9

Weighted-average discount rate
 
Operating leases
5.3
%
Finance leases
8.5
%
Supplemental cash flow information related to leases is as follows:
 
 
39 Weeks Ended
 
 
April 25,
2020
Cash paid for amounts in the measurement of lease liabilities
 
 
Operating cash flows from operating leases
 
$
13,167

Operating cash flows from finance leases
 
1,544

Financing cash flows from finance leases
 
414


In the first quarter of fiscal 2020, the Company adopted ASU 2016-02, and as required, the following disclosure is provided for periods prior to adoption. Future minimum lease payments by year and in the aggregate for all non-cancelable leases with initial terms of one year or more consisted of the following at July 27, 2019:

 
Capital and
 financing leases
 
Operating
leases
2020
$
5,173

 
$
13,573

2021
5,240

 
12,972

2022
5,240

 
10,348

2023
5,305

 
9,747

2024
5,342

 
7,457

Thereafter
43,708

 
61,043

Minimum lease payments
70,008

 
$
115,140

Less amount representing interest
28,233

 
 

 
 
 
 
Present value of minimum lease payments
41,775

 
 

 
 
 
 
Less current portion
1,022

 
 

 
$
40,753

 
 



8. BUSINESS ACQUISITION

On June 24, 2019, the Company purchased three Gourmet Garage specialty markets in Manhattan, New York City. Village acquired the store fixtures, leases, inventory, other working capital and other assets for $5,203, net of cash and cash equivalents. Village has accounted for this transaction as a business combination in accordance with the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date. In connection with this acquisition, the Company recorded $529 of goodwill attributable to the assembled workforce of Gourmet Garage and cost synergies and a $1,485 indefinite-lived intangible asset related to the trade name. Transaction costs were expensed as incurred. The final allocation of the purchase price consideration to the assets acquired and the liabilities assumed has been completed.





13



9. SUBSEQUENT EVENTS

Credit Facility

On May 6, 2020, Village entered into a credit agreement (the “Credit Facility”) with Wells Fargo National Bank, National Association (“Wells Fargo”) that supersedes in its entirety the prior credit agreement with Wells Fargo dated November 9, 2017. The principal purpose of the Credit Facility is to finance general corporate and working capital requirements and Village’s acquisition of certain Fairway assets. Among other things, the Credit Facility provides for a maximum loan amount of $150,500, as further set forth below:

An unsecured revolving line of credit providing a maximum amount available for borrowing of $125,000. Indebtedness under this agreement bears interest at the applicable LIBOR rate plus 1.10% and expires on May 6, 2025.

An unsecured term loan with a maximum loan amount of $25,500. On May 12, 2020, Village executed a $25,500 term note, repayable in equal monthly installments based on a seven-year amortization schedule through May 4, 2027 and bearing interest at the applicable LIBOR rate plus 1.35%. Additionally, Village executed an interest rate swap for a notional amount equal to the term loan amount that fixes the base LIBOR rate at .41% per annum through May 4, 2027, resulting in a fixed effective interest rate of 1.76% on the term note.

The ability to convert up to $50,000 of the revolving line of credit to a secured converted term loan, which shall reduce the maximum amount available for borrowing under the revolving line of credit. Village expects to reduce the capacity of the revolving line of credit by converting approximately $50,000 to a converted term loan that will bear interest at the applicable LIBOR rate plus 1.50% and will be repayable in equal monthly installments based on a fifteen-year amortization schedule beginning on the conversion date. The converted term loan is subject to completion of closing conditions, including title searches and environmental studies for properties to be mortgaged. Additionally, Village executed a forward interest rate swap, effective August 3, 2020, for a notional amount of $50,000 that fixes the base LIBOR rate at .69% per annum for fifteen years, resulting in a fixed effective interest rate of 2.19% on the converted term loan.

The Credit Facility also provides for up to $25,000 of letters of credit, and contains covenants that, among other conditions, require a minimum tangible net worth, a minimum fixed charge coverage ratio and a maximum adjusted debt to EBITDAR ratio.

Fairway Markets

On May 14, 2020, Village completed its acquisition of certain assets, including five supermarkets, a production distribution center (the “PDC”) and the intellectual property of Fairway Group Holdings Corp. and certain of its subsidiaries (“Fairway”), including the names “Fairway” and “Fairway Markets.” Four of the supermarkets are in Manhattan, specifically the Upper West Side, Upper East Side, Kips Bay and Chelsea locations, and a fifth store is located in Pelham, NY. The acquisition was effectuated pursuant to the Asset Purchase Agreement (the "APA"), entered into on January 20, 2020, revised on March 25, 2020 and approved by the United States Bankruptcy Court for the Southern District of New York through a Sale Order entered on April 20, 2020. Village paid $73,200 for the Fairway assets, net of adjustments set forth in the APA, and assumed certain liabilities, consisting primarily of those arising from acquired leases. Additionally, Village’s cash purchase price was reduced by a $2,000 credit arising from the breakup of Village’s initial “stalking horse” bid under the January 20, 2020 Asset Purchase Agreement. 
    
The purchase price for the acquisition was funded by borrowing against the Company’s unsecured revolving line of credit and the $25,500 unsecured term loan pursuant to the Company's Credit Facility. Additionally, as required by the APA, Village made a $7,600 deposit into escrow which is included in Other assets in the Company's Consolidated Balance Sheet as of April 25, 2020.

Superstorm Sandy Recovery

Superstorm Sandy devastated Village's trade area on October 29, 2012 and resulted in the closure of almost all of our stores for periods of time ranging from a few hours to eight days. Village disposed of substantial amounts of perishable product and also incurred repair, labor and other costs as a result of the storm. Wakefern, as the policy holder, has pursued recovery of uncollected insurance claims on behalf of all Wakefern members through litigation against the insurance carrier and others since October 2013. Litigation over this matter has ended and the Company received an additional $2,266 in May 2020 which will be recognized as a reduction in Operating and administrative expense in the fourth quarter of fiscal 2020. Village previously recognized $415 as a reduction in Operating and administrative expense in the first quarter of fiscal 2019, and has received a total of $6,264 related to losses incurred as a result of Superstorm Sandy.


14



ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands)

OVERVIEW

Village Super Market, Inc. (the “Company” or “Village”) operates a chain of 30 ShopRite supermarkets in New Jersey, eastern Pennsylvania, Maryland and New York City and three Gourmet Garage specialty markets in Manhattan, New York City. On November 1, 2019, Village opened a 82,000 sq. ft. (52,000 selling sq. ft.) store in Stroudsburg, Pennsylvania and replaced our existing 53,000 sq. ft. store. On June 24, 2019, Village acquired the assets and certain liabilities of Gourmet Garage for $5,203. Gourmet Garage operates three specialty markets averaging 11,000 sq. ft. (5,800 selling sq. ft.) in Manhattan, New York City. On June 28, 2018, Village opened a 53,000 sq. ft. (31,000 selling sq. ft.) ShopRite in the Bronx, New York City.  

On May 14, 2020, Village completed its acquisition of certain assets, including five supermarkets, a production distribution center (the “PDC”) and the intellectual property of Fairway Group Holdings Corp. and certain of its subsidiaries (“Fairway”), including the names “Fairway” and “Fairway Markets.” Four of the supermarkets are in Manhattan, specifically the Upper West Side, Upper East Side, Kips Bay and Chelsea locations, and a fifth store is located in Pelham, NY. The acquisition was effectuated pursuant to the Asset Purchase Agreement (the "APA"), entered into on January 20, 2020, revised on March 25, 2020 and approved by the United States Bankruptcy Court for the Southern District of New York through a Sale Order entered on April 20, 2020. Village paid $73,200 for the Fairway assets, net of adjustments set forth in the APA, and assumed certain liabilities, consisting primarily of those arising from acquired leases. Additionally, Village’s cash purchase price was reduced by a $2,000 credit arising from the breakup of Village’s initial “stalking horse” bid under the January 20, 2020 Asset Purchase Agreement. 

Village is the second largest member of Wakefern Food Corporation (“Wakefern”), the nation’s largest retailer-owned food cooperative and owner of the ShopRite and Gourmet Garage names.  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, store brands, advanced retail technology, marketing and advertising associated with chains of greater size and geographic coverage.

The supermarket industry is highly competitive and characterized by narrow profit margins.  The Company competes directly with multiple retail formats, both in-store and online, including national, regional and local supermarket chains as well as warehouse clubs, supercenters, drug stores, discount general merchandise stores, fast food chains, restaurants, dollar stores and convenience stores. Village competes by using low pricing, providing a superior customer service experience and a broad range of consistently available quality products, including our own brands portfolio. In October 2019, ShopRite introduced the Right Price Promise pricing strategy, a commitment to everyday low prices on the items customers purchase most frequently. The ShopRite Price Plus preferred customer program enables Village to offer continuity programs, focus on target marketing initiatives and to offer discounts and attach digital coupons directly to a customer's Price Plus card. 

In November 2019, ShopRite launched the Bowl & Basket and Paperbird store brands. Bowl & Basket foods pair thoughtfully selected ingredients at a budget friendly price and Paperbird offers a line of newly designed household products.  More than 100 newly branded items, including packaged salads, salty snacks, cooking oils, bottled water and paper goods, were introduced in early November. ShopRite expects to add nearly 3,500 Bowl & Basket foods and Paperbird household products through fiscal 2021. The introduction of Bowl & Basket and Paperbird follows the 2016 launch of ShopRite’s Wholesome Pantry brands, which include the Wholesome Pantry Organic line as well as a range of products free from 110 ingredients and artificial additives and preservatives.

The Company’s stores, six of which are owned, average 56,000 total square feet. These larger store sizes enable the Company’s stores to provide a “one-stop” shopping experience and to feature expanded higher margin specialty departments such as an on-site bakery, an expanded delicatessen, a variety of natural and organic foods, ethnic and international foods, prepared foods and pharmacies. Many of our stores emphasize a Power Alley, which features high margin, fresh, convenience offerings in an area within the store that provides quick customer entry and exit for those customers shopping for today's lunch or dinner. Certain of our stores include the Village Food Garden concept featuring a restaurant style kitchen, and several kiosks offering a wide variety of store prepared specialty foods for both take-home and in-store dining.

We offer ShopRite from Home covering most of the communities served by our stores. ShopRite from Home is an online ordering system that provides for in-store pickup or home delivery. Customers can browse our circular, create and edit shopping lists and use ShopRite from Home through shoprite.com or on their smart phones or tablets through the ShopRite app. We also offer online purchasing through various third party digital platforms.


15



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; units per labor hour; and hourly labor rates.
 
COVID-19

The Company was significantly impacted by the COVID-19 outbreak as it operates in and around one of the epicenters of the health crisis with much of our trade area under stay-at-home orders since mid-March 2020. The Company is classified as an essential business and has remained open to serve our customers and the communities in which we operate. Our first priority throughout this unprecedented time has and will continue to be the safety of our associates and our customers. In response to COVID-19, Village incurred incremental operating expenses of over $5,500 in the 13 weeks ended April 25, 2020 for programs and new initiatives implemented to support and protect our associates, customers and the communities we are a part of including:

Enhanced and more frequent sanitation practices, including hourly cleaning of high touch point areas throughout our stores, nightly deep cleaning and bi-weekly disinfectant fogging in every store
Reduced store operating hours, including the closure of all stores on Easter Sunday, to provide time for our associates to rest and complete the enhanced cleaning practices
Created a centralized call center to provide our associates with consistent, accurate, reliable guidance regarding Company policies and CDC recommended protocols
Created a text communication platform to provide enrolled associates with real-time alerts and updates
Expanded remote work capabilities for office associates and limited travel of regional supervision teams
Provided over 150,000 meals, including two hot meals during the day to all associates on duty and a boxed lunch to all night crew associates, through the Feeding Our Village Heroes Program
Provided over 15,000 meals sourced from local restaurants to healthcare professionals through our Heroes Feeding Heroes program
Reserved the first hour of business each day for elderly and at-risk customers
Implemented a temporary wage premium of $2 per hour above the standard base rate of pay for all hourly front-line associates and weekly premiums for salaried front-line associates, applied to hours worked from March 22nd through June 13th
Accelerated payment of quarterly bonuses for the 13 weeks ended April 25, 2020
Provided Emergency Paid Leave to associates affected by COVID-19
Maintained health care coverage for all associates unable to work due to COVID-19
Blue Squares for Social Distancing program - installed floor markers and additional signage in high traffic areas to signify six-foot distances to encourage proper social distancing
Installed plexiglass shields at all registers, guest services and pharmacy counters
Reduced offerings at service departments, eliminated the sale of bulk self-service merchandise and closed in-store restaurants and dining areas to assist and encourage social distancing
Limited the number of customers to approximately 30% of each store's maximum occupancy
Implemented a Personal Protective Equipment program and provided associates with masks and gloves
Donated and supplied masks to local hospitals
Implemented temperature checks for all associates
Expanded digital capabilities, including four rapidly deployed "pop-up" ShopRite from Home stores, contactless pickup and prescription drug pickup and delivery
Expanded partnerships with online grocery picking and delivery services to better support our customers increased demand for these services
Introduced the Essentials Box Program - providing a safe and convenient way to stock up on in-demand produce or cleaning products, pre-packaged and available for delivery
Expanded mobile scan to an additional 10 stores




16



RESULTS OF OPERATIONS

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

 
13 Weeks Ended
 
39 Weeks Ended
 
April 25, 2020
 
April 27, 2019
 
April 25, 2020
 
April 27, 2019
Sales
100.00
 %
 
100.00
 %
 
100.00
 %
 
100.00
 %
Cost of sales
71.66

 
72.03

 
72.27

 
72.21

Gross profit
28.34

 
27.97

 
27.73

 
27.79

Operating and administrative expense
23.34

 
24.62

 
24.39

 
23.97

Depreciation and amortization
1.68

 
1.65

 
1.76

 
1.66

Operating income
3.32

 
1.70

 
1.58

 
2.16

Interest expense
(0.12
)
 
(0.28
)
 
(0.13
)
 
(0.27
)
Interest income
0.20

 
0.35

 
0.25

 
0.32

Income before taxes
3.40

 
1.77

 
1.70

 
2.21

Income taxes
0.97

 
0.51

 
0.49

 
0.66

Net income
2.43
 %
 
1.26
 %
 
1.21
 %
 
1.55
 %

Sales.  Sales were $458,292 in the 13 weeks ended April 25, 2020, an increase of 15.9% compared to the 13 weeks ended April 27, 2019.  Sales increased due to the opening of the Stroudsburg replacement store on November 1, 2019, the acquisition of Gourmet Garage on June 24, 2019 and a same store sales increase of 13.6%. Same store sales increased due primarily to the impact of the COVID-19 outbreak and related stay-at-home measures, most significantly in March where sales reached unprecedented levels. Same store sales also increased due to continued sales growth in the Bronx, New York City store opened on June 28, 2018 and digital sales growth of 41.8%.

Sales were $1,303,116 in the 39 weeks ended April 25, 2020, an increase of 6.4% from the 39 weeks ended April 27, 2019. Sales increased due to the opening of the Stroudsburg replacement store on November 1, 2019, the acquisition of Gourmet Garage on June 24, 2019 and a same store sales increase of 4.5%. Same store sales increased due primarily to the impact of the COVID-19 outbreak and related stay-at-home measures. Same store sales also increased due to continued sales growth in the Bronx, New York City store opened on June 28, 2018 and digital sales growth of 28.1%. These increases were partially offset by the impact of two competitor store openings and decreased promotional spending in Maryland.

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 and expansions are included in same store sales immediately.

Gross Profit.  Gross profit as a percentage of sales increased .37% in the 13 weeks ended April 25, 2020 compared to the 13 weeks ended April 27, 2019. Excluding the impact of the addition of Gourmet Garage, gross profit as a percentage of sales increased .16% in the 13 weeks ended April 25, 2020 compared to the 13 weeks ended April 27, 2019 due primarily to lower promotional spending due to uncertainty of product availability during the COVID-19 outbreak (.49%) and increased leverage on fixed warehouse assessment charges from Wakefern (.26%). These increases were partially offset by an unfavorable change in product mix (.37%), decreased departmental gross margin percentages (.18%) and decreased patronage dividends and rebates received from Wakefern (.05%). Both product mix and departmental gross margin percentages were impacted by limitations in service departments and product availability as a result of the COVID-19 outbreak.

Gross profit as a percentage of sales decreased .06% in the 39 weeks ended April 25, 2020 compared to the 39 weeks ended April 27, 2019. Excluding the impact of the addition of Gourmet Garage, gross profit as a percentage of sales decreased
.28% due primarily to decreased departmental gross margin percentages (.31%), decreased patronage dividends and rebates received from Wakefern (.07%) and an unfavorable change in product mix (.10%) partially offset by lower promotional spending (.11%) and increased leverage on warehouse assessment charges from Wakefern (.09%).

Departmental gross profits decreased in both the 13 and 39 week periods ended April 25, 2020 compared to the 13 and 39 weeks ended April 27, 2019 due primarily to limitations in service departments and product availability as a result of the COVID-19 outbreak, price investments, including the ShopRite's Right Price Promise pricing strategy, a commitment to everyday

17



low prices on the items customers purchase most frequently, introduced in October 2019, and decreased pharmacy margins as a result of continued downward pressure on prescription reimbursement rates from third party providers.

Operating and Administrative Expense.  Operating and administrative expense as a percentage of sales decreased 1.28% in the 13 weeks ended April 25, 2020 compared to the 13 weeks ended April 27, 2019. The 13 weeks ended April 25, 2020 includes a gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March 2020 (.26%) and lease costs reclassified from Depreciation and Amortization and Interest Expense to Operating and Administrative Expense (.14%) as a result of the adoption of ASU 2016-02, “Leases” (see note 1 to the consolidated financial statements), and a reduction in pension settlement charges of (.08%) compared to the 13 weeks ended April 27, 2019. Excluding these items, operating and administrative expense as a percentage of sales decreased 1.08% in the 13 weeks ended April 25, 2020 compared to the 13 weeks ended April 27, 2019 due primarily to leverage from higher sales despite incremental costs related to COVID-19, including enhanced wages and benefits and expanded safety and sanitation protocols (1.21%).

Operating and administrative expense as a percentage of sales increased .42% in the 39 weeks ended April 25, 2020 compared to the 39 weeks ended April 27, 2019. The 39 weeks ended April 25, 2020 includes a gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March 2020 (.09%), a non-cash pension charge related to the termination of a company-sponsored pension plan and other pension settlement charges (.10%) (see note 4 to the consolidated financial statements), pre-opening costs of the Stroudsburg, Pennsylvania replacement store (.10%), store closure costs and charges to write off the lease asset and related obligations for the old Stroudsburg store (.06%) and lease costs reclassified from Depreciation and Amortization and Interest Expense to Operating and Administrative Expense (.14%) as a result of the adoption of ASU 2016-02, “Leases” (see note 1 to the consolidated financial statements). The 39 weeks ended April 27, 2019 includes a gain for Superstorm Sandy insurance proceeds received (.03%) and pension settlement charges (.04%). Excluding these items from both periods, operating and administrative expense as a percentage of sales increased .10% in the 39 weeks ended April 25, 2020 compared to the 39 weeks ended April 27, 2019 due primarily to incremental costs related to COVID-19, including enhanced wages and benefits and expanded safety and sanitation protocols (.42%) partially offset by increased leverage from higher sales.

Depreciation and Amortization.  Depreciation and amortization expense increased in the 13 weeks ended April 25, 2020 compared to the 13 weeks ended April 27, 2019 due to depreciation related to acquisition of Gourmet Garage and capital expenditures. Depreciation and amortization expense increased in the 39 weeks ended April 25, 2020 compared to the 39 weeks ended April 27, 2019 due to depreciation related to acquisition of Gourmet Garage, capital expenditures and accelerated depreciation related to assets at the existing Stroudsburg store that was replaced on November 1, 2019.
 
Interest Expense.  Interest expense in the 13 and 39 weeks ended April 25, 2020 decreased compared to the 13 and 39 weeks ended April 27, 2019 due to lease costs reclassified to Operating and Administrative Expenses as a result of the adoption of ASU 2016-02, “Leases” (see note 1 to the consolidated financial statements).
 
Interest Income.  Interest income decreased in the 13 and 39 weeks ended April 25, 2020 compared to the 13 and 39 weeks ended April 27, 2019 due primarily to lower amounts invested in variable rate notes receivable from Wakefern and demand deposits invested at Wakefern and lower interest rates.

Income Taxes.  The effective income tax rate was 28.4% and 28.9% in the 13 and 39 weeks ended April 25, 2020, respectively, compared to 28.9% and 29.9% in the 13 and 39 weeks ended April 27, 2019, respectively.
 
Net Income.  Net income was $11,152 in the 13 weeks ended April 25, 2020 compared to $4,970 in the 13 weeks ended April 27, 2019. The 13 weeks ended April 25, 2020 includes a gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March 2020 of $854 (net of tax). The 13 weeks ended April 25, 2020 includes pension settlement charges of $83 (net of tax) compared to $302 (net of tax) in the 13 weeks ended April 27, 2019. Excluding these items from both periods, net income increased 97% in the 13 weeks ended April 25, 2020 compared to the prior year.

Net income was $15,724 in the 39 weeks ended April 25, 2020 compared to $18,810 in the 39 weeks ended April 27, 2019. The 39 weeks ended April 25, 2020 includes a gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March 2020 of $854 (net of tax), a non-cash pension charge related to the termination of a company-sponsored pension plan and other pension settlement charges of $954 (net of tax), pre-opening costs related to the Stroudsburg, Pennsylvania replacement store of $891 (net of tax) and store closure costs and charges to write off the lease asset and related obligations for the old Stroudsburg store of $557 (net of tax). The 39 weeks ended April 27, 2019 includes a $290 (net of tax) gain for Superstorm Sandy insurance proceeds received and pension settlement charges of $302 (net of tax). Excluding these items from both periods, net income decreased 8% in the 39 weeks ended April 25, 2020 compared to the prior year.



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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.  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 and accounting for pension plans, are described in the Company’s Annual Report on Form 10-K for the year ended July 27, 2019Except for the changes due to the adoption of ASU 2016-02 related to leases discussed in "Recently adopted accounting standards," Note 1, and Note 7 as of April 25, 2020, there have been no changes to 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.
 

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $59,404 in the 39 weeks ended April 25, 2020 compared to $39,769 in the corresponding period of the prior year.  The increase in net cash provided by operating activities in fiscal 2020 was primarily due to changes in working capital. Working capital changes, including Other assets and liabilities, increased net cash provided by operating activities by $16,965 in fiscal 2020 compared to a decrease of $1,718 in fiscal 2019. The change in impact of working capital is due primarily to lower merchandise inventories caused by higher sales due to COVID-19 and higher accounts payable to Wakefern due to higher purchase fulfillment at the end of April.
 
During the 39 weeks ended April 25, 2020, Village used cash to fund capital expenditures of $47,812, dividends of $9,697, a $7,600 deposit into escrow related to the Fairway acquisition and additional investments of $2,243 in notes receivable from Wakefern.  Capital expenditures primarily include costs associated with the Stroudsburg replacement store, expansion of ShopRite from Home and equipment purchases.

Village has budgeted $55,000 for capital expenditures for fiscal 2020. Planned expenditures include the construction of a replacement store in Stroudsburg, Pennsylvania, one major remodel, expansion of ShopRite from Home, and various merchandising, technology, equipment and facility upgrades. The Company’s primary sources of liquidity in fiscal 2020 are expected to be cash and cash equivalents on hand at April 25, 2020, operating cash flow generated in fiscal 2020 and the Company's Credit Facility.

At April 25, 2020, the Company held variable rate notes receivable due from Wakefern of $25,839 that earn interest at the prime rate plus 1.25% and mature on August 15, 2022 and $26,612 that earn interest at the prime rate plus .75% and mature on February 15, 2024. Wakefern has the right to prepay these notes at any time. Under certain conditions, the Company can require Wakefern to prepay the notes, although interest earned since inception would be reduced as if it was earned based on overnight money market rates as paid by Wakefern on demand deposits.

Working capital was $21,067 at April 25, 2020 compared to $56,307 at July 27, 2019. Working capital ratios at the same dates were 1.17 and 1.50 to 1, respectively.  The decrease in working capital in fiscal 2020 compared to fiscal 2019 is due primarily to a decrease in merchandise inventories caused by higher sales and intermittent supply chain disruptions due to COVID-19 and recognition of current operating lease obligations as a result of the adoption of ASU 2016-02, “Leases”. The Company’s working capital needs are reduced, since inventories are generally sold by the time payments to Wakefern and other suppliers are due.

Village had an unsecured revolving credit agreement providing a maximum amount available for borrowing of $25,000. The credit agreement provided for up to $3,000 of letters of credit, which secured obligations for construction performance guarantees to municipalities. There were no amounts outstanding at April 25, 2020 or July 27, 2019 under the facility.

On May 6, 2020, Village entered into a credit agreement (the “Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”) that supersedes in its entirety the prior $25,000 credit agreement with Wells Fargo dated November 9, 2017. The principal purpose of the Credit Facility is to finance general corporate and working capital requirements and Village’s acquisition of certain Fairway assets which closed on May 14, 2020. Among other things, the Credit Facility provides for a maximum loan amount of $150,500, as further set forth below:

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An unsecured revolving line of credit providing a maximum amount available for borrowing of $125,000. Indebtedness under this agreement bears interest at the applicable LIBOR rate plus 1.10% and expires on May 6, 2025.

An unsecured term loan with a maximum loan amount of $25,500. On May 12, 2020, Village executed a $25,500 term note, repayable in equal monthly installments based on a seven-year amortization schedule through May 4, 2027 and bearing interest at the applicable LIBOR rate plus 1.35%. Additionally, Village executed an interest rate swap for a notional amount equal to the term loan amount that fixes the base LIBOR rate at .41% per annum through May 4, 2027, resulting in a fixed effective interest rate of 1.76% on the term note.

The ability to convert up to $50,000 of the revolving line of credit to a secured converted term loan, which shall reduce the maximum amount available for borrowing under the revolving line of credit. Village expects to reduce the capacity of the revolving line of credit by converting approximately $50,000 to a converted term loan that will bear interest at the applicable LIBOR rate plus 1.50% and will be repayable in equal monthly installments based on a fifteen-year amortization schedule beginning on the conversion date. The converted term loan is subject to completion of customary closing conditions, including title searches and environmental studies for properties to be mortgaged. Additionally, Village executed a forward interest rate swap, effective August 3, 2020, for a notional amount of $50,000 that fixes the base LIBOR rate at .69% per annum for fifteen years, resulting in a fixed effective interest rate of 2.19% on the converted term loan.

The Credit Facility also provides for up to $25,000 of letters of credit, and contains covenants that, among other conditions, require a minimum tangible net worth, a minimum fixed charge coverage ratio and a maximum adjusted debt to EBITDAR ratio.

Fairway Markets

The $73,200 purchase price for the Fairway acquisition was funded by borrowing against the Company’s unsecured revolving line of credit and an unsecured term loan pursuant to the Company's Credit Facility. Additionally, as required by the APA, Village had made a $7,600 deposit into escrow which is included in Other assets in the Company's Consolidated Balance Sheet as of April 25, 2020.

There have been no other substantial changes as of April 25, 2020 to the contractual obligations and commitments discussed in the Company’s Annual Report on Form 10-K for the year ended July 27, 2019.


OUTLOOK

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:  same store sales; 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.

Due to the uncertainty arising from the COVID-19 global health crisis and its significant impact on our business, the Company will not provide same store sales guidance for fiscal 2020.
We have budgeted $55,000 for capital expenditures in fiscal 2020. Planned expenditures include the construction of a replacement store in Stroudsburg, Pennsylvania, one major remodel, expansion of ShopRite from Home, and various merchandising, technology, equipment and facility upgrades.
The Board’s current intention is to continue to pay quarterly dividends in 2020 at the most recent rate of $.25 per Class A and $.1625 per Class B share.
We believe cash and cash equivalents on hand, operating cash flow and the Company's Credit Facility will be adequate to meet anticipated requirements for working capital, capital expenditures, acquisition of Fairway and debt payments for the foreseeable future.

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We expect our effective income tax rate in fiscal 2020 to be in the range of 29.5% - 30.5%.
We expect approximately $1,800 of net periodic pension costs in fiscal 2020 related to the four Company sponsored defined benefit pension plans. The Company expects contributions to its defined benefit pension plans to be immaterial in fiscal 2020.
Various uncertainties and other factors could cause actual results to differ from the forward-looking statements contained in this report. These include:

The Company operates in and around one of the epicenters of the COVID-19 health crisis with much of our trade area under stay-at-home orders since mid-March 2020. The Company is classified as an essential business and has remained open to serve our customers and the communities in which we operate. The continuing impact on our business, including the length and impact of stay-at-home orders and/or regional quarantines, labor shortages and employment trends, disruptions to supply chains, including our ability to obtain products from our suppliers, higher operating costs, the form and impact of economic stimulus and general overall economic instability, is uncertain at this time and could have a material adverse effect on our business, results of operations, financial condition and cash flows. Furthermore, the impact of the COVID-19 health crisis may exacerbate other risks and uncertainties included herein and in the Company’s Annual Report on Form 10-K for the year ended July 27, 2019, which could have a material effect on the Company.
The Fairway acquisition involves a number of risks, uncertainties and challenges, including under-performance relative to our expectations, additional capital requirements, unforeseen expenses or delays, imprecise assumptions or our inability to achieve projected cost savings or other synergies, competitive factors in the marketplace and difficulties integrating the business, including merging company cultures, cultivating brand strategy, expansion of food production and conforming the acquired company's standards, processes, procedures and controls. Many of these potential circumstances are outside of our control and any of them could result in an adverse impact on our results of operations, financial condition and cash flows and the diversion of management time and resources.
The supermarket business is highly competitive and characterized by narrow profit margins. Results of operations may be materially adversely impacted by competitive pricing and promotional programs, industry consolidation and competitor store openings. Village competes directly with multiple retail formats both in-store and online, including national, regional and local supermarket chains as well as warehouse clubs, supercenters, drug stores, discount general merchandise stores, fast food chains, restaurants, dollar stores and convenience stores. Some of these competitors have greater financial resources, lower merchandise acquisition costs and lower operating expenses than we do.
The Company’s stores are concentrated in New Jersey, New York, Pennsylvania and Maryland. We are vulnerable to economic downturns in these states in addition to those that may affect the country as a whole. Economic conditions such as inflation, deflation, interest rate fluctuations, movements in energy costs, social programs, minimum wage legislation, unemployment rates and changing demographics may adversely affect our sales and profits.
Village purchases substantially all of its merchandise from Wakefern.  In addition, Wakefern provides the Company with support services in numerous areas including advertising, liability and property insurance, supplies, certain equipment purchasing, coupon processing, certain financial accounting applications, retail technology support, and other store services.  Further, Village receives patronage dividends and other product incentives from Wakefern and also has demand deposits and notes receivable due from Wakefern.
Any material change in Wakefern’s method of operation or a termination or material modification of Village’s relationship with Wakefern could have an adverse impact on the conduct of the Company’s business and could involve additional expense for Village.  The failure of any Wakefern member to fulfill its obligations to Wakefern or a member’s insolvency or withdrawal from Wakefern could result in increased costs to the Company.  Additionally, an adverse change in Wakefern’s results of operations or solvency could have an adverse effect on Village’s results of operations.
Approximately 88% of our employees are covered by collective bargaining agreements. Any work stoppages could have an adverse impact on our financial results. If we are unable to control health care and pension costs provided for in the collective bargaining agreements, we may experience increased operating costs.
The Company could be adversely affected if consumers lose confidence in the safety and quality of the food supply chain.  The real or perceived sale of contaminated food products by us could result in a loss of consumer confidence and product liability claims, which could have a material adverse effect on our sales and operations.

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