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UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934.
For the fiscal year ended July 31, 2021
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
COMMISSION FILE NUMBER: 0-33360
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) |
| | |
Registrant’s telephone number, including area code: (973) 467-2200 |
| | |
Securities registered pursuant to Section 12(b) of the Act: |
| | |
Class A common stock, no par value | VLGEA | The NASDAQ Stock Market |
(Title of Class) | (Trading Symbol) | (Name of exchange on which registered) |
| | |
Securities registered pursuant to Section 12(g) of the Act: None |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ý
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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý 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 (§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 ý No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§299.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an 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.
| | | | | | | | |
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
The aggregate market value of the Class A common stock of Village Super Market, Inc. held by non-affiliates was approximately $179.0 million and the aggregate market value of the Class B common stock held by non-affiliates was approximately $0.3 million based upon the closing price of the Class A shares on the NASDAQ on January 23, 2021, the last business day of the second fiscal quarter. There are no other classes of voting stock outstanding.
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of latest practicable date.
| | | | | |
| Outstanding at |
Class | October 14, 2021 |
| |
Class A common stock, no par value | 10,260,906 Shares |
Class B common stock, no par value | 4,293,748 Shares |
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the 2021 definitive Proxy Statement to be filed with the Commission and delivered to security holders in connection with the Annual Meeting scheduled to be held on December 17, 2021 are incorporated by reference into this Form 10-K at Part II, Item 5 and Part III.
PART I
(All dollar amounts are in thousands, except per share and per square foot data).
ITEM I. BUSINESS
GENERAL
Village Super Market, Inc. (the “Company” or “Village”) was founded in 1937. Village operates a chain of twenty-nine ShopRite supermarkets, five Fairway Markets and three Gourmet Garage specialty markets located in New Jersey, New York, Pennsylvania and Maryland.
The Company is a member of Wakefern Food Corporation ("Wakefern"), the nation's largest retailer-owned food cooperative and owner of the ShopRite, Fairway and Gourmet Garage names. This relationship provides Village many of the economies of scale in purchasing, distribution, own branded products, advanced retail technology, marketing and advertising associated with chains of greater size and geographic coverage. 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.
During fiscal 2021, sales per store were $52,713 and sales per average square foot of selling space were $1,349.
Below is a summary of the range of store sizes at July 31, 2021:
| | | | | |
Total Square Feet | Number of Stores |
| |
Greater than 60,000 | 16 |
50,001 to 60,000 | 9 |
40,001 to 50,000 | 5 |
20,000 to 40,000 | 4 |
Less than 20,000 | 3 |
Total | 37 |
These larger store sizes enable the Company’s stores to provide a “one-stop” shopping experience and to feature expanded specialty departments such as an onsite 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.
Online grocery ordering for in-store pick up or home delivery through ShopRite from Home is available in all of our ShopRite stores. Customers can browse our circular, create and edit shopping lists and use ShopRite from Home through shoprite.com or the ShopRite app. Additionally, the ShopRite Order Express app enables customers to pre-order deli, catering, specialty
occasion cakes and other items. Online ordering for home delivery through third party services is available in all Fairway and Gourmet Garage stores. In April 2020 we also added online ordering for home delivery through third party services in all ShopRite stores.
The following table shows the percentage of the Company's sales allocated to various product categories during each of the periods indicated:
| | | | | | | | | | | | | |
Product Categories | |
| 2021 | | 2020 | | |
Groceries | 34.7 | % | | 35.9 | % | | |
Dairy and Frozen | 17.2 | | | 17.1 | | | |
Produce | 13.2 | | | 11.9 | | | |
Meats | 9.8 | | | 9.9 | | | |
Non-Foods | 7.0 | | | 7.9 | | | |
Deli and Prepared Food | 7.7 | | | 7.4 | | | |
Pharmacy | 3.3 | | | 3.8 | | | |
Seafood | 3.2 | | | 2.9 | | | |
Bakery | 2.4 | | | 2.1 | | | |
Liquor | 1.1 | | | 0.7 | | | |
Other | 0.4 | | | 0.4 | | | |
| 100 | % | | 100 | % | | |
A variety of factors affect the profitability of each of the Company's stores, including competition, size, access and parking, lease terms, management supervision, and the strength of the applicable banner in the local community. The Company gives ongoing attention to the décor and format of its stores and tailors each store's product mix to the preferences of the local community. Village continually evaluates individual stores to determine if they should be closed, remodeled or replaced.
ACQUISITIONS, DEVELOPMENT AND EXPANSION
The Company has an ongoing program to upgrade and expand its supermarket chain. This program has included store remodels as well as the opening or acquisition of additional stores. When remodeling, Village has sought, whenever possible, to increase the amount of selling space in its stores.
We have budgeted $40,000 for capital expenditures in fiscal 2022. Planned expenditures include three major remodels, several smaller store remodels, the purchase of Galloway store shopping center, one new Gourmet Garage store, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.
Additional store remodels and sites for new stores are in various stages of development. Village will also consider additional acquisitions should appropriate opportunities arise.
Fiscal 2021
Fiscal 2021 capital expenditures include one major remodel, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.
On February 22, 2021, Village closed the ShopRite store located in Silver Spring, Maryland. Despite continued investment in marketing and promotional programs, the store was unable to generate sales at a level sufficient to maintain profitability, resulting in its closure. The impacts associated with this closure were not material to the consolidated financial statements.
Fiscal 2020
On May 14, 2020, Village completed its acquisition of certain assets, including five supermarkets averaging 52,000 sq. ft. (30,000 selling sq. ft.), 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” for $73,622, net of cash acquired. 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. Like Village, Fairway traces its roots back to a neighborhood
market over 80 years ago. Fairway Markets offer a one-stop destination shopping experience with an emphasis on fresh, unique, and high quality offerings paired with an expansive variety of natural, organic, specialty and gourmet products. The PDC is a centralized commissary that promotes production efficiency, product quality and consistency in the bakery, prepared foods, meals to go and other perishable product categories. Production costs at the PDC, including materials, labor and overhead, are included in Cost of sales. The Fairway acquisition expanded our presence in New York City under an iconic city brand and provides Village the ability to expand centralized food production to support stores under all of our banners.
Fiscal 2020 capital expenditures include costs associated with the opening of an 82,000 sq. ft. (52,000 selling sq. ft.) store in Stroudsburg, Pennsylvania that replaced our existing 53,000 sq. ft. store, expansion of ShopRite from Home, including the opening of an automated micro-fulfillment center in southern New Jersey, one major store remodel, several smaller remodels and equipment upgrades, including those in the integration of the Fairway acquisition.
WAKEFERN FOOD CORPORATION
The Company is the second largest member of Wakefern and owns 12.2% of Wakefern’s outstanding stock as of July 31, 2021. Wakefern, which was organized in 1946, is the nation’s largest retailer-owned food cooperative. Wakefern and its 48 shareholder members operate 362 supermarkets and other retail formats, including 92 stores operated by Wakefern. Only Wakefern and its members are entitled to use the ShopRite, Fairway and Gourmet Garage names and trademarks, and to participate in related advertising and promotional programs.
The principal benefits to the Company from its relationship with Wakefern are the use of the ShopRite, Fairway and Gourmet Garage names and trademarks, volume purchasing, store and own branded products, distribution and warehousing economies of scale, advertising and promotional programs (including the ShopRite Price Plus card) and the development of advanced retail technology. The Company believes that the ShopRite and Fairway names are widely recognized by its customers and is a factor in their decisions about where to shop. Store and own branded products accounted for approximately 12.4% of ShopRite sales in fiscal 2021.
Wakefern distributes as a "patronage dividend" to each of its stockholders a share of substantially all of its earnings in proportion to the dollar volume of purchases by the stockholder from Wakefern during each fiscal year.
While Wakefern has a substantial professional staff, it operates as a member owned cooperative. Executives of most members make contributions of time to the business of Wakefern. Executives of the Company spend a significant amount of their time working on various Wakefern committees, which oversee and direct Wakefern purchasing, merchandising and other programs. In addition, Nicholas Sumas, the Company’s Co-President, is a member of the Wakefern Board of Directors.
Most of the Company's advertising is developed and placed by Wakefern's professional advertising staff. Wakefern is responsible for all broadcast television, radio, print and digital advertisements. Wakefern bills its members using various formulas which allocate advertising costs in accordance with the estimated proportional benefits to each member from such advertising. The Company also places Wakefern developed materials with local newspapers. In addition, Wakefern and its affiliates provide the Company with other services including workers' compensation, liability and property insurance, supplies, certain equipment purchasing, coupon processing, certain financial accounting applications, retail technology support, including shoprite.com, gourmetgarage.com, fairway.com, branded apps and other store services.
Wakefern operates warehouses and distribution facilities in Elizabeth, Keasbey, Whitehouse, Dayton, Newark and Jamesburg, New Jersey and Gouldsboro, Breinigsville and Hatfield Pennsylvania. The Company and all other members of Wakefern are parties to the Wakefern Stockholders' Agreement which provides for certain commitments by, and restrictions on, all shareholders of Wakefern. This agreement extends until ten years from the date that stockholders representing 75% of Wakefern sales notify Wakefern that those stockholders request the Wakefern Stockholders' Agreement be terminated. Each member is obligated to purchase from Wakefern a minimum of 85% of its requirements for products offered by Wakefern. If this purchase obligation is not met, the member is required to pay Wakefern's profit contribution shortfall attributable to this failure. The Company fulfilled this obligation in fiscal 2021 and 2020. This agreement also requires that in the event of unapproved changes in control of the Company or a sale of the Company or of individual Company stores, except to a qualified successor, the Company in such cases must pay Wakefern an amount equal to the annual profit contribution shortfall attributable to the sale of a store or change in control. No payments are required if the volume lost by a shareholder as a result of the sale of a store is replaced by such shareholder by increased volume in existing or new stores. A "qualified successor" must be, or agree to become, a member of Wakefern, and may not own or operate any supermarkets, other than ShopRite, PriceRite, The Fresh Grocer, Fairway, Gourmet Garage or Dearborn Market supermarkets, in the states of New York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia, Connecticut, Massachusetts, Rhode Island, Vermont, New Hampshire,
Maine or the District of Columbia, or own or operate more than 25 non-ShopRite supermarkets in any other locations in the United States.
Wakefern, under circumstances specified in its bylaws, may refuse to sell merchandise to, and may repurchase the Wakefern stock of, any member. Such circumstances include a member's bankruptcy filing, certain unapproved transfers by a member of its supermarket business or its capital stock in Wakefern, unapproved acquisition by a member of certain supermarket or grocery wholesale supply businesses, the material breach by a member of any provision of the bylaws of Wakefern or any agreement with Wakefern, or a failure to fulfill financial obligations to Wakefern.
Any material change in Wakefern's method of operation or a termination or material modification of the Company's relationship with Wakefern following termination of the above agreements, or otherwise, might have an adverse impact on the conduct of the Company's business and could involve additional expense for the Company. The failure of any Wakefern member to fulfill its obligations under these agreements or a member's insolvency or withdrawal from Wakefern could result in increased costs to remaining members.
Wakefern does not prescribe geographical franchise areas to its members. The specific locations at which the Company, other members of Wakefern, or Wakefern itself, may open new units under the ShopRite, PriceRite, The Fresh Grocer, Fairway, Gourmet Garage or Dearborn Market names are, however, subject to the approval of Wakefern's Site Development Committee. This committee is composed of persons who are not employees or members of Wakefern. Committee decisions to deny a site application may be appealed to the Wakefern Board of Directors. Wakefern assists its members in their site selection by providing appropriate demographic data, volume projections and estimates of the impact of the proposed store on existing member supermarkets in the area.
Each of Wakefern's members is required to make capital contributions to Wakefern based on the number of stores operated by that member and the purchases from Wakefern generated by those stores. As additional stores are opened or acquired by a member, additional capital must be contributed by it to Wakefern. The Company’s investment in Wakefern and affiliates was $33,004 at July 31, 2021. The total amount of debt outstanding from all capital pledges to Wakefern is $3,423 at July 31, 2021. The maximum per store investment increased from $950 to $975 in fiscal 2021, resulting in an additional $670 capital pledge, which was paid in fiscal 2021.
As required by the Wakefern bylaws, the Company’s investment in Wakefern is pledged to Wakefern to secure the Company’s obligations to Wakefern. In addition, five members of the Sumas family have guaranteed the Company’s obligations to Wakefern. These personal guarantees are required of any 5% shareholder of the Company who is active in the operation of the Company. Wakefern does not own any securities of the Company or its subsidiaries. The Company’s investment in Wakefern entitles the Company to enough votes to elect one member to the Wakefern Board of Directors due to cumulative voting rights.
LABOR
As of July 31, 2021, the Company employed approximately 7,268 persons with approximately 70% working part-time. Approximately 89% of the Company’s employees are covered by collective bargaining agreements. Contracts with the Company’s seven unions have expiration dates between March 2020 and August 2025. Approximately 10% of our associates are represented by unions whose contracts have expired or will expire within one year. Many of the Company’s competitors are similarly unionized.
SEASONALITY
The majority of our revenues are generally not seasonal in nature. However, revenues tend to be higher during the major holidays throughout the year.
REGULATORY ENVIRONMENT
The Company’s business requires various licenses and the registration of facilities with state and federal health and drug regulatory agencies. These licenses and registration requirements obligate the Company to observe certain rules and regulations, and a violation of these rules and regulations could result in a suspension or revocation of licenses or registrations and fines or penalties. In addition, most licenses require periodic renewals. The Company has not experienced material difficulties with respect to obtaining or retaining licenses and registrations.
COMPETITION
The supermarket business is highly competitive and characterized by narrow profit margins. 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 the Company's principal competitors include Acme, Aldi, Amazon/Whole Foods, BJs, Costco, Foodtown, Giant, Kings, Lidl, Safeway, Stop & Shop, Target, Trader Joe's, Wal-Mart, Wegmans and Weis. Competition with these outlets is based on price, store location, convenience, promotion, product assortment, quality and service. Some of these competitors have greater financial resources, lower merchandise acquisition costs and lower operating expenses than we do.
AVAILABLE INFORMATION
As a member of the Wakefern cooperative, Village relies upon our customer focused websites, shoprite.com, gourmetgarage.com and fairway.com, for interaction with customers and prospective employees. This website is maintained by Wakefern for the benefit of all ShopRite supermarkets, and therefore does not contain any financial information related to the Company.
The Company will provide paper copies of the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and press releases free of charge upon request to any shareholder. In addition, electronic copies of these filings can be obtained at sec.gov.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
As of July 31, 2021, Village owns the sites of six of its supermarkets (containing 412,000 square feet of total space), all of which are freestanding stores, except the Egg Harbor store, which is part of a shopping center, and the micro-fulfillment center in southern New Jersey. The remaining 31 stores (containing 1,614,000 square feet of total space), PDC and the corporate headquarters are leased, with initial lease terms generally ranging from 20 to 30 years, usually with renewal options. Twenty-three of these leased stores are located in shopping centers or city storefronts and the remaining eight are freestanding stores. Most of the Company’s leases contain renewal options at increased rents of five 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.
As of July 31, 2021, finance lease right-of-use assets of $12,806 are included in property, equipment and fixtures, net in the Company's consolidated balance sheet.
The annual rental payment, including finance leases, for all of the Company's leased facilities for the year ended July 31, 2021 was approximately $37,457. For additional information on lease obligations, see Note 7 to the consolidated financial statements.
Village is a limited partner in two partnerships, one of which owns a shopping center in which one of our leased stores is located. The Company is also a general partner in a partnership that is a lessor of one of the Company's freestanding stores.
On October 13, 2021, Village completed the acquisition of the Galloway store shopping center for $9,800. As of July 31, 2021, the right-of-use asset and obligation related to the Galloway store's lease were $873 and $887, respectively.
ITEM 3. LEGAL PROCEEDINGS
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 $2,733 in the 4th quarter of fiscal 2020 which was recognized as a reduction in operating and administrative expense. Village has received a total of $6,730 related to losses incurred as a result of Superstorm Sandy.
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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(All dollar amounts are in thousands, except per share data).
Stock Price and Dividend Information
The Class A common stock of Village Super Market, Inc. is traded on the NASDAQ Global Select Market under the symbol “VLGEA.” The table below sets forth the high and low last reported sales price for the fiscal quarter indicated.
| | | | | | | | | | | |
2021 | High | | Low |
4th Quarter | $25.46 | | $22.55 |
3rd Quarter | $26.19 | | $21.07 |
2nd Quarter | $23.89 | | $21.56 |
1st Quarter | $26.41 | | $23.19 |
2020 | High | | Low |
4th Quarter | $27.72 | | $22.43 |
3rd Quarter | $24.58 | | $17.10 |
2nd Quarter | $28.40 | | $22.46 |
1st Quarter | $26.73 | | $24.26 |
As of October 1, 2021, there were approximately 278 holders of record of Class A common stock.
During fiscal 2021, Village paid cash dividends of $13,050. Dividends in fiscal 2021 consist of $1.00 per Class A common share and $.65 per Class B common share.
During fiscal 2020, Village paid cash dividends of $12,965. Dividends in fiscal 2020 consist of $1.00 per Class A common share and $.65 per Class B common share.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data
(Dollars in thousands, except per share data and per square foot data).
Fiscal 2021 contains 53 weeks, with the additional week included in the fourth quarter. All other fiscal years contain 52 weeks.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For year | July 31, 2021 | | July 25, 2020 | | July 27, 2019 | | July 28, 2018 | | July 29, 2017 | |
Sales | $ | 2,030,330 | | | $ | 1,804,594 | | | $ | 1,643,502 | | | $ | 1,612,015 | | | $ | 1,604,574 | | |
Net income | 19,994 | | (1) | 24,939 | | (2) | 25,539 | | (3) | 25,080 | | (4) | 22,921 | | |
Net income as a % of sales | 0.98 | % | | 1.38 | % | | 1.55 | % | | 1.56 | % | | 1.43 | % | |
Net income per share: | | | | | | | | | | |
Class A common stock: | | | | | | | | | | |
Basic | $ | 1.53 | | | $ | 1.93 | | | $ | 1.98 | | | $ | 1.95 | | | $ | 1.80 | | |
Diluted | 1.37 | | | 1.72 | | | 1.77 | | | 1.74 | | | 1.60 | | |
Class B common stock: | | | | | | | | | | |
Basic | 1.00 | | | 1.25 | | | 1.29 | | | 1.27 | | | 1.16 | | |
Diluted | 1.00 | | | 1.25 | | | 1.29 | | | 1.27 | | | 1.16 | | |
Cash dividends per share: | | | | | | | | | | |
Class A | 1.00 | | | 1.00 | | | 1.00 | | | 1.00 | | | 1.00 | | |
Class B | 0.65 | | | 0.65 | | | 0.65 | | | 0.65 | | | 0.65 | | |
| | | | | | | | | | |
At year-end | | | | | | | | | | |
Total assets (5) | $ | 889,004 | | | $ | 915,546 | | | $ | 502,289 | | | $ | 481,590 | | | $ | 455,225 | | |
Long-term debt (5) | 370,078 | | | 396,181 | | | 47,725 | | | 48,186 | | | 42,646 | | |
Working capital | 44,023 | | | 34,522 | | | 56,307 | | | 89,201 | | | 85,279 | | |
Shareholders’ equity | 341,473 | | | 332,320 | | | 318,672 | | | 303,145 | | | 286,820 | | |
Book value per share | 23.48 | | | 22.84 | | | 22.15 | | | 21.08 | | | 19.93 | | |
| | | | | | | | | | |
Other data | | | | | | | | | | |
Same store sales trend (6) | 2.3 | % | | 5.3 | % | | (0.5) | % | | 0.2 | % | | 0.0 | % | |
Total square feet | 2,026,000 | | | 2,091,000 | | | 1,804,000 | | | 1,770,000 | | | 1,717,000 | | |
Average total sq. ft. per store | 55,000 | | | 55,000 | | | 55,000 | | | 59,000 | | | 59,000 | | |
Selling square feet | 1,481,000 | | | 1,529,000 | | | 1,401,000 | | | 1,384,000 | | | 1,353,000 | | |
Sales per average square foot of selling space (7) | $ | 1,349 | | | $ | 1,275 | | | $ | 1,186 | | | $ | 1,188 | | | $ | 1,186 | | |
Number of stores | 37 | | | 38 | | | 33 | | | 30 | | | 29 | | |
Sales per average number of stores (7) | $ | 52,713 | | | $ | 53,284 | | | $ | 54,715 | | | $ | 55,450 | | | $ | 55,330 | | |
Capital expenditures and acquisitions | 25,233 | | | 54,495 | | | 27,988 | | | 35,464 | | | 27,726 | | |
(1) Includes a $2,802 (net of tax) gain on the sale of the leasehold interest in a non-supermarket related parking lot lease obtained as part of the Fairway acquisition, a gain on the sale of a pharmacy prescription list related to the Silver Spring store, net of store closing costs of $276 (net of tax), non-cash impairment charges for the Fairway trade name and the long lived assets for one Gourmet Garage store of $2,010 (net of tax), pension settlement charges of $407 (net of tax) and estimated net income of $417 due to the fiscal year including a 53rd week.
(2) Includes a $1,911 (net of tax) gain for Superstorm Sandy insurance proceeds received, an $854 (net of tax) gain on the sale of pharmacy prescription lists related to three store pharmacies closed in March 2020, a $2,512 incremental benefit from a federal net operating loss carryback at a rate higher than the current statutory tax rate, a $1,423 (net of tax) gain arising from the
breakup of Village’s initial “stalking horse” bid under the January 20, 2020 Fairway Asset Purchase Agreement, transaction costs incurred for the Fairway acquisition of $1,888 (net of tax), amortization of acquisition related inventory step-up of $355 (net of tax), a non-cash pension charge related to the termination of a company-sponsored pension plan and other pension settlement charges of $1,160 (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).
(3) Includes a $290 (net of tax) gain for Superstorm Sandy insurance proceeds received, a tax benefit of $777 related to the favorable settlement of a tax audit with the New Jersey Division of Taxation and a non-cash pension charge related to pension settlement charges of $308 (net of tax).
(4) Includes a $3,300 reduction in deferred tax expense as a result of the Tax Cuts and Jobs Act, an $822 (net of tax) non-recurring credit accrued related to multi-employer pension benefits, $877 (net of tax) in non-recurring assessments from Wakefern and $695 (net of tax) in pre-opening costs related to the Bronx, New York City store.
(5) On July 28, 2019, the Company adopted ASU 2016-02, “Leases.” The adoption of the standard resulted in the recognition of operating lease assets and operating lease liabilities, included in long-term debt of $99,415 and $111,139, respectively, as of the date of adoption.
(6) 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. The change in same store sales in fiscal 2021 excludes the impact of the 53rd week in fiscal 2021 and fiscal 2017 excludes the impact of the 53rd week in fiscal 2016.
(7) Amounts for the year ended July 25, 2020 exclude the results of the Fairway stores acquired on May 14, 2020, amounts for the year ended July 27, 2019 exclude the results of the Gourmet Garage stores acquired on June 24, 2019. Amounts for the year ended July 28, 2018 exclude results of the store opened in the Bronx, New York on June 28, 2018.
Unaudited Quarterly Financial Data
(Dollars in thousands except per share amounts).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | | Fiscal Year |
2021 | | | | | | | | | |
Sales | $ | 490,136 | | | $ | 522,818 | | | $ | 481,093 | | | $ | 536,283 | | | $ | 2,030,330 | |
Gross profit | 137,963 | | | 141,845 | | | 133,422 | | | 151,814 | | | 565,044 | |
Net income | 3,360 | | | 4,555 | | | 2,574 | | | 9,500 | | | 19,994 | |
Net income per share: | | | | | | | | | |
Class A common stock: | | | | | | | | | |
Basic | 0.26 | | | 0.35 | | | 0.20 | | | 0.73 | | | 1.53 | |
Diluted | 0.23 | | | 0.31 | | | 0.18 | | | 0.65 | | | 1.37 | |
Class B common stock: | | | | | | | | | |
Basic | 0.17 | | | 0.23 | | | 0.13 | | | 0.47 | | | 1.00 | |
Diluted | 0.17 | | | 0.23 | | | 0.13 | | | 0.47 | | | 1.00 | |
| | | | | | | | | |
2020 | | | | | | | | | |
Sales | $ | 407,402 | | | $ | 437,422 | | | $ | 458,292 | | | $ | 501,478 | | | $ | 1,804,594 | |
Gross profit | 113,546 | | | 117,947 | | | 129,901 | | | 145,081 | | | 506,475 | |
Net income | 2,567 | | | 2,005 | | | 11,138 | | | 9,229 | | | 24,939 | |
Net income per share: | | | | | | | | | |
Class A common stock: | | | | | | | | | |
Basic | 0.20 | | | 0.16 | | | 0.86 | | | 0.71 | | | 1.93 | |
Diluted | 0.18 | | | 0.14 | | | 0.77 | | | 0.63 | | | 1.72 | |
Class B common stock: | | | | | | | | | |
Basic | 0.13 | | | 0.10 | | | 0.56 | | | 0.46 | | | 1.25 | |
Diluted | 0.13 | | | 0.10 | | | 0.56 | | | 0.46 | | | 1.25 | |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share and per square foot data).
OVERVIEW
Village operates a chain of twenty-nine ShopRite supermarkets, five Fairway Markets and three Gourmet Garage specialty markets located in New Jersey, New York, Pennsylvania and Maryland. Village is the second largest member of Wakefern Food Corporation (“Wakefern”), the nation’s largest retailer-owned food cooperative and owner of the ShopRite, Fairway and Gourmet Garage names. This ownership interest in Wakefern provides Village with many of the economies of scale in purchasing, distribution, advanced retail technology, marketing and advertising associated with larger chains.
On February 22, 2021, Village closed the ShopRite store located in Silver Spring, Maryland. Despite continued investment in marketing and promotional programs, the store was unable to generate sales at a level sufficient to maintain profitability, resulting in its closure. The impacts associated with this closure were not material to the consolidated financial statements.
On May 14, 2020, Village completed its acquisition of certain assets, including five supermarkets averaging 52,000 sq. ft. (30,000 selling sq. ft.), 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” for $73,622, net of cash acquired. 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. Like Village, Fairway traces its roots back to a neighborhood market over 80 years ago. Fairway Markets offer a one-stop destination shopping experience with an emphasis on fresh, unique, and high quality offerings paired with an expansive variety of natural, organic, specialty and gourmet products. The PDC is a centralized commissary that promotes production efficiency, product quality and consistency in the bakery, prepared foods, meals to go and other perishable product categories. Production costs at the PDC, including materials, labor and overhead, are included in Cost of sales. The Fairway acquisition expands our presence in New York City under an iconic city brand and provides Village the ability to expand centralized food production to support stores under all of our banners.
On November 1, 2019, Village opened an 82,000 sq. ft. (52,000 selling sq. ft.) ShopRite in Stroudsburg, Pennsylvania and replaced our existing 53,000 sq. ft. store.
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. 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.
The Company’s stores, six of which are owned, average 55,000 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.
Online grocery ordering for in-store pick up or home delivery through ShopRite from Home is available in all of our ShopRite stores. Customers can browse our circular, create and edit shopping lists and use ShopRite from Home through shoprite.com or the ShopRite app. Additionally, the ShopRite Order Express app enables customers to pre-order deli, catering, specialty occasion cakes and other items. Online ordering for home delivery through third party services is available in all Fairway and Gourmet Garage stores. In April 2020 we also added online ordering for home delivery through third party services in all ShopRite stores.
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.
The Company utilizes a 52 - 53 week fiscal year, ending on the last Saturday in the month of July. Fiscal 2021 contains 53 weeks and fiscal 2020 contains 52 weeks.
COVID-19
The Company was significantly impacted by the COVID-19 outbreak as it operates in and around one of the early U.S. epicenters of the health crisis. The Company is classified as an essential business and has remained open to serve our customers and the communities in which we operate. We continue to experience changes in customer shopping habits, shifts in product mix and increased demand through digital channels as a result of the COVID-19 pandemic. Demand remains high in most stores, however sales at Fairway and Gourmet Garage locations in Manhattan have been negatively impacted by localized residential population migration out of the city and less commuter and tourist traffic. We expect continued uncertainty in our business as well as the local and regional economies in which we operate depending on the duration and intensity of the COVID-19 pandemic (see the "Outlook" section below for further discussion of risks and uncertainties).
NON-GAAP MEASURES
The accompanying Consolidated Financial Statements, including the related notes, are presented in accordance with generally accepted accounting principles (“GAAP”). We provide non-GAAP measures, including Adjusted net income and Adjusted operating and administrative expenses management believes these metrics are useful to investors and analysts. These non-GAAP financial measures should not be considered as an alternative to GAAP measures such as net income, operating income, operating and administrative expense or any other GAAP measure of performance. These measures should not be reviewed in isolation or considered as a substitute for our financial results as reported in accordance with GAAP. We believe Adjusted net income and Adjusted operating and administrative expense are useful metrics to investors and analysts because they present more accurate year-over-year comparisons of our net income and operating and administrative expense. Other companies may have different definitions of Non-GAAP Measures and provide for different adjustments, and comparability to the Company's results of operations may be impacted by such differences. The Company's presentation of Non-GAAP Measures should not be construed as an implication that its future results will be unaffected by unusual or non-recurring items.
The following tables reconciles Net income to Adjusted net income and Operating and administrative expenses to Adjusted operating and administrative expenses:
| | | | | | | | | | | | | | | | | |
| | | | | 53 Weeks Ended | | 52 Weeks Ended |
| | | | | July 31, 2021 | | July 25, 2020 |
| | | | | | | |
Net Income | | | | | $ | 19,994 | | | $ | 24,938 | |
| | | | | | | |
Adjustments to Gross Profit: | | | | | | | |
Amortization of acquisition related inventory step up | | | | | — | | | 507 | |
| | | | | | | |
Adjustments to Operating and administrative expense: | | | | | | | |
Gain on sale of assets (1) | | | | | (4,768) | | | (1,220) | |
Non-cash pension termination and settlement charges | | | | | 587 | | | 1,604 | |
Store closure costs (2) | | | | | 325 | | | 799 | |
New store pre-opening costs (3) | | | | | — | | | 1,274 | |
Gain on Superstorm Sandy insurance proceeds | | | | | — | | | (2,733) | |
Fairway acquisition transaction costs | | | | | — | | | 2,701 | |
Break-up fee income (4) | | | | | — | | | (2,035) | |
| | | | | | | |
Other adjustments: | | | | | | | |
Impairment of assets (5) | | | | | 2,900 | | | — | |
Estimated income from 53rd week (6) | | | | | (602) | | | — | |
| | | | | | | |
Adjustments to Income taxes: | | | | | | | |
Tax impact of adjustments to gross profit and operating expenses | | | | | 478 | | | (236) | |
Tax gain on federal net operating loss carryback | | | | | — | | | (2,512) | |
| | | | | | | |
Adjusted net income | | | | | $ | 18,914 | | | $ | 23,087 | |
| | | | | | | |
Operating and administrative expense | | | | | 498,786 | | | 444,833 | |
Total adjustments to operating administrative expense | | | | | 3,856 | | | (390) | |
Adjusted operating and administrative expense | | | | | 502,642 | | | 444,443 | |
Adjusted operating and administrative expense as a % of sales | | | | | 24.76 | % | | 24.63 | % |
(1) Fiscal 2021 includes a $4,044 gain on the sale of the leasehold interest in a non-supermarket related parking lot obtained as part of the Fairway acquisition and a $724 gain on the sale of the pharmacy prescription list related to the Silver Spring store. Fiscal 2020 includes a gain on the sale of the pharmacy prescription lists related to three store pharmacies closed in March 2020.
(2) Fiscal 2021 includes costs associated with the closure of the Silver Spring, Maryland store on February 22, 2021 and Fiscal 2020 includes charges to write off the lease asset and related obligations for the old Stroudsburg store.
(3) Fiscal 2020 pre-opening costs relate to the Stroudsburg replacement store opened on November 1, 2019.
(4) Fiscal 2020 gain due to the breakup of Village’s initial “stalking horse” bid under the January 20, 2020 Fairway Asset Purchase Agreement.
(5) Fiscal 2021 non-cash impairment charges for the Fairway trade name of $2,386 and the long-lived assets for one Gourmet Garage store of $514.
(6) Fiscal 2021 is a 53-week fiscal year, with the additional week included in the fourth quarter.
RESULTS OF OPERATIONS
The following table sets forth the components of the consolidated statements of operations of the Company as a percentage of sales:
| | | | | | | | | | | | | |
| July 31, 2021 | | July 25, 2020 | | |
Sales | 100.00 | % | | 100.00 | % | | |
Cost of sales | 72.17 | % | | 71.93 | % | | |
Gross profit | 27.83 | % | | 28.07 | % | | |
Operating and administrative expense | 24.57 | % | | 24.65 | % | | |
Depreciation and amortization | 1.69 | % | | 1.74 | % | | |
Impairment of assets | 0.14 | % | | — | % | | |
Operating income | 1.43 | % | | 1.68 | % | | |
Interest expense | (0.19) | % | | (0.14) | % | | |
Interest income | 0.18 | % | | 0.22 | % | | |
Income before income taxes | 1.42 | % | | 1.76 | % | | |
Income taxes | 0.44 | % | | 0.38 | % | | |
Net income | 0.98 | % | | 1.38 | % | | |
SALES
Sales were $2,030,330 in fiscal 2021, an increase of $225,736, or 12.5% from fiscal 2020. Sales increased $35,433, or 2.0%, due to fiscal 2021 containing 53 weeks. Excluding the impact of the 53rd week, sales increased due to the Fairway acquisition completed on May 14, 2020, the opening of the Stroudsburg replacement store on November 1, 2019 and a same store sales increase of 1.8%. Excluding the impact of the 53rd week, same store sales increased 7.5% in fiscal 2021 on a two-year stacked basis compared to fiscal 2019.
Since the beginning of the COVID-19 pandemic, we have experienced higher average basket sizes and decreased transaction counts as customers have consolidated shopping trips. Additionally, both food inflation and increased Supplemental Nutrition Assistance Program ("SNAP") benefits positively impacted sales. Same store digital sales growth accelerated through both ShopRite from Home and partnerships with online grocery picking and delivery services, increasing 68% in fiscal 2021 compared to fiscal 2020 and 219% on a two-year stacked basis. During the COVID-19 pandemic, fiscal 2021 sales at Fairway and Gourmet Garage locations in Manhattan have been significantly negatively impacted due primarily to residential population migration out of the city and less commuter and tourist traffic.
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 decreased to 27.83% in fiscal 2021 compared to 28.07% in fiscal 2020. Higher margins associated with Fairway increased gross profit (.22%), despite higher costs as we transition and integrate commissary operations into our business. Excluding the impact of Fairway, gross profit as a percentage of sales decreased .46% due primarily to decreased departmental gross margin percentages (.48%) and increased warehouse assessment charges from Wakefern (.34%), partially offset by a favorable change in product mix (0.17%), lower promotional spending (0.16%) and increased patronage dividends and rebates received from Wakefern (.03%). Departmental gross profits decreased due partly to price investments.
OPERATING AND ADMINISTRATIVE EXPENSE
Operating and administrative expense as a percentage of sales decreased to 24.57% in fiscal 2021 compared to 24.65% in fiscal 2020. Adjusted operating and administrative expense as a percentage of sales increased to 24.76% in fiscal 2021 compared to 24.63% in fiscal 2020.
Adjusted operating and administrative expense increased due primarily to increased occupancy costs due primarily to the Fairway acquisition (.56%) and increased external fees and transportation costs associated with digital sales (.42%), partially offset by decreased costs related to COVID-19, including enhanced wages and benefits, security and outside sanitation services (.62%) and lower payroll and fringe benefit costs (.24%). Payroll and fringe benefits decreased primarily due to leverage from higher sales, reductions in service department offerings, labor shortages and productivity initiatives partially offset by the addition of Fairway, growth of ShopRite from Home and minimum wage and demand driven pay rate increases.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $34,195 and $31,358 in fiscal 2021 and 2020, respectively. Depreciation and amortization expense increased in fiscal 2021 compared to the prior year due to depreciation related to assets acquired as part of the Fairway acquisition.
IMPAIRMENT OF ASSETS
Impairment of assets includes non-cash charges related to the Fairway trade name of $2,386 (see note 1 to the consolidated financial statements) and the long-lived assets for one Gourmet Garage store of $514.
INTEREST EXPENSE
Interest expense was $3,943 and $2,611 in fiscal 2021 and 2020, respectively. Interest expense increased in fiscal 2021 compared to fiscal 2020 due primarily to interest expense related to the credit agreement entered into on May 6, 2020 (see note 7 to the consolidated financial statements).
INTEREST INCOME
Interest income was $3,633 and $4,060 in fiscal 2021 and 2020, respectively. Interest income decreased in fiscal 2021 compared to fiscal 2020 due primarily to lower interest rates for amounts invested in variable rate notes receivable from Wakefern and demand deposits invested at Wakefern.
INCOME TAXES
The Company’s effective income tax rate was 30.7% and 21.4% in fiscal 2021 and 2020, respectively.
Fiscal 2020 includes a $2,512 benefit from a federal net operating loss carryback at a rate higher than the current statutory tax rate. Excluding the impact of these adjustments, the effective income tax rate was 29.3% in fiscal 2020. The increase in the effective tax rate in fiscal 2021 is due primarily to favorable return to provision adjustments in fiscal 2020 and increased state taxable income in higher tax rate jurisdictions.
NET INCOME
Net income was $19,994 in fiscal 2021 compared to $24,939 in fiscal 2020. Adjusted net income was $18,914 in fiscal 2021 compared to $23,087 in fiscal 2020. Adjusted net income decreased 18% in fiscal 2021 compared to the prior year due primarily to lower sales volumes in Manhattan and higher costs as we transition and integrate commissary operations into our business.
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 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.
IMPAIRMENT
The Company reviews the carrying values of its long-lived assets, such as property, equipment and fixtures for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Such review analyzes the undiscounted estimated future net cash flows from asset groups at the store level to determine if the carrying value of such assets are recoverable from their respective cash flows. If impairment is indicated, it is measured by comparing the fair value of the long-lived asset groups to their carrying value.
Goodwill and indefinite-lived intangible assets are tested at the end of each fiscal year, or more frequently if circumstances dictate, for impairment. The Company utilizes valuation techniques, such as earnings multiples, in addition to the Company’s market capitalization, to assess goodwill for impairment. Calculating the fair value of a reporting unit requires the use of estimates. Management believes the fair value of Village’s one reporting unit exceeds its carrying value at July 31, 2021. Should the Company’s carrying value of its one reporting unit exceed its fair value, the amount of any resulting goodwill impairment may be material to the Company’s financial position and results of operations. The fair value of indefinite-lived intangible assets are estimated based on the discounted cash flow model using the relief from royalty method.
Manhattan store sales have been impacted by localized residential population migration out of Manhattan and less commuter and tourist traffic during the COVID-19 pandemic. Due to uncertainty regarding the duration and extent of the impact of the COVID-19 pandemic on Manhattan, the Company recognized an impairment charge related to the Fairway trade name of $2,386 for year ended July 31, 2021.
PATRONAGE DIVIDENDS
As a stockholder of Wakefern, Village earns a share of Wakefern’s earnings, which are distributed as a “patronage dividend.” This dividend is based on a distribution of substantially all of Wakefern’s operating profits for its fiscal year (which ends on or about September 30) in proportion to the dollar volume of purchases by each member from Wakefern during that fiscal year. Patronage dividends are recorded as a reduction of cost of sales as merchandise is sold. Village accrues estimated patronage dividends due from Wakefern quarterly based on an estimate of the annual Wakefern patronage dividend and an estimate of Village’s share of this annual dividend based on Village’s estimated proportional share of the dollar volume of business transacted with Wakefern that year. The patronage dividend receivable based on these estimates was $11,860 and $11,204 at July 31, 2021 and July 25, 2020, respectively.
BUSINESS COMBINATIONS
We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. The determination of fair values of identifiable assets and liabilities requires estimates and the use of valuation techniques when market value is not readily available. For intangible assets acquired in a business combination, we typically determine the fair value based on the discounted cash flow model, specifically the relief from royalty method for intangible assets related to a trade name. Significant estimates in valuing certain intangible assets include, but are not limited to, the amount and timing of future revenues, cash flows, growth rates, discount rates and useful lives. The excess of the purchase price over fair values of identifiable assets and liabilities is recorded as goodwill.
PENSION PLANS
The determination of the Company’s obligation and expense for Company-sponsored pension plans is dependent, in part, on Village’s selection of assumptions used by actuaries in calculating those amounts. These assumptions are described in Note 9 to the consolidated financial statements and include, among others, the discount rate, the expected long-term rate of return on plan assets and the rate of increase in compensation costs. Actual results that differ from the Company’s assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense in future periods. While management believes that its assumptions are appropriate, significant differences in actual experience or significant changes in the Company’s assumptions may materially affect cash flows, pension obligations and future expense.
The objective of the discount rate assumption is to reflect the rate at which the Company’s pension obligations could be effectively settled based on the expected timing and amounts of benefits payable to participants under the plans. Our methodology for selecting the discount rate as of July 31, 2021 was to match the plans' cash flows to that of a yield curve on high-quality fixed-income investments. Based on this method, we utilized a weighted-average discount rate of 2.44% at July 31, 2021 compared to 2.26% at July 25, 2020. Changes in the discount rate and updated assumptions on mortality tables and improvement scales resulted in a net decrease in the projected benefit obligation by approximately $(1,206) at July 31, 2021. Village evaluated the expected increase in compensation costs of 4.50% and concluded no changes in this assumption was necessary in estimating pension plan obligations and expense. The Company utilizes a liability-driven investment ("LDI") strategy. A LDI strategy focuses on maintaining a close to fully-funded status over the long-term with minimal funded status risk. This is achieved by investing more of the plan assets in fixed income instruments to more closely match the duration of the plan liability. The investment allocation to fixed income instruments will increase as each plans' funded status increases. Based on the Company’s LDI strategy, the Company assumed a weighted-average assumed long-term rate of return on plan assets of 3.36% in fiscal 2021.
Sensitivity to changes in the major assumptions used in the calculation of the Company’s pension plans is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Percentage point change | | Projected benefit obligation decrease (increase) | | Expense decrease (increase) |
Discount rate | + / - 1.0 % | | $ | 9,693 | | $ | (12,211) | | | $ | 376 | | $ | (436) | |
Expected return on assets | + / - 1.0 % | | $ | — | | — | | | $ | 589 | | $ | (589) | |
Village made no contributions in both fiscal 2021 and fiscal 2020 to these Company-sponsored pension plans. In fiscal 2020 the Company began the process of terminating the Village Super Market, Inc. Employees’ Retirement Plan. Upon satisfaction of all regulatory requirements, which is expected to occur during fiscal 2022, the Company will fully fund and liquidate all plan assets to purchase annuity contracts from an insurance company for all participants who do not elect a lump sum distribution. At the time of settlement, the Company will recognize a non-cash pre-tax charge representing the plan’s remaining unrecognized losses within accumulated other comprehensive loss as of the termination date. As of July 31, 2021, the funded status of this plan is a net liability of $3,844 and the pre-tax amount included in Accumulated other comprehensive loss is $15,155. Contributions to the remaining plans are expected to be immaterial in fiscal 2022.
RECENTLY ISSUED ACCOUNTING STANDARDS
For the disclosure related to recently issued accounting standards, see Note 1 to the consolidated financial statements.
LIQUIDITY and CAPITAL RESOURCES
CASH FLOWS
Net cash provided by operating activities was $52,692 in fiscal 2021 compared to $83,948 in fiscal 2020. The change in cash flows from operating activities in fiscal 2021 was primarily due to changes in working capital and net income adjusted for non-cash items including depreciation and amortization, share-based compensation, deferred taxes, loss on pension settlements, the provision to value inventories at LIFO and the gain on sale of prescription lists and property, equipment and fixtures.
Working capital changes, including other assets and other liabilities, decreased net cash provided by operating activities by $1,587 in fiscal 2021 compared an increase in net cash provided by operating activities of $1,127 in fiscal 2020. This change in impact of working capital is due primarily to lower accounts payable to Wakefern and Accounts payable and accrued expense due to inventory turnover and operations normalizing after the initial impact of the pandemic partially offset by changes in timing of income tax payments.
During fiscal 2021, Village used cash to fund capital expenditures of $25,233, dividends of $13,050, principal payments of long-term debt of $8,414 and additional investments of $2,287 in notes receivable from Wakefern, net of proceeds received on matured notes. Capital expenditures include one major remodel, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.
During fiscal 2020, Village used cash to fund capital expenditures of $54,495, dividends of $12,965, treasury stock purchases of $4,389 and additional investments of $2,800 in notes receivable from Wakefern, net of proceeds received on matured notes. The $73,622 purchase price for the Fairway acquisition was funded by $50,000 drawn on the Company’s unsecured revolving line of credit and a $25,500 unsecured term loan pursuant to the Company's Credit Facility. Capital expenditures include costs associated with the opening of an 82,000 sq. ft. (52,000 selling sq. ft.) store in Stroudsburg, Pennsylvania that replaced our existing 53,000 sq. ft. store, expansion of ShopRite from Home, including the opening of an automated micro-fulfillment center in southern New Jersey, one major store remodel, several smaller remodels and equipment upgrades, including those in the integration of the Fairway acquisition.
LIQUIDITY and DEBT
Working capital was $44,023 and $34,522 at July 31, 2021 and July 25, 2020, respectively. Working capital ratios at the same dates were 1.29 and 1.21 to one, respectively. The Company’s working capital needs are reduced, since inventories are generally sold by the time payments to Wakefern and other suppliers are due.
We have budgeted $40,000 for capital expenditures in fiscal 2022. Planned expenditures include three major remodels, several smaller store remodels, the purchase of the Galloway store shopping center, one new Gourmet Garage store, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades. The Company’s primary sources of liquidity in fiscal 2022 are expected to be cash and cash equivalents on hand at July 31, 2021 and operating cash flow generated in fiscal 2022.
At July 31, 2021, the Company held variable rate notes receivable due from Wakefern of $27,325 that earn interest at the prime rate plus 1.25% and mature on August 15, 2022 and $27,970 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.
At July 31, 2021, Village had demand deposits invested at Wakefern in the amount of $86,670. These deposits earn overnight money market rates.
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.
•On September 1, 2020, Village converted $50,000 of its revolving line of credit to a secured converted term loan. The conversion reduced the maximum amount available for borrowing under the revolving line of credit from $125,000 to $75,000. The term loan bears interest at the applicable LIBOR rate plus 1.50% and is repayable in equal monthly
installments based on a fifteen-year amortization schedule beginning on the conversion date. Additionally, Village previously executed a forward interest rate swap, effective on the conversion date, for a notional amount equal to the term loan amount that fixes the base LIBOR rate at 0.69% per annum for 15 years, resulting in a fixed effective interest rate of 2.19% on the converted term loan. The term loan is secured by real properties of Village Super Market, Inc. and its subsidiaries, including the sites of three Village stores.
The Credit Facility also provides for up to $25,000 of letters of credit ($7,336 outstanding at July 31, 2021), which secure obligations for store leases and construction performance guarantees to municipalities. The Credit Facility 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. The Company was in compliance with all covenants of the credit agreement at July 31, 2021. As of July 31, 2021, $67,664 remained available under the unsecured revolving line of credit.
During fiscal 2021, Village paid cash dividends of $13,050. Dividends in fiscal 2021 consist of $1.00 per Class A common share and $.65 per Class B common share.
During fiscal 2020, Village paid cash dividends of $12,965. Dividends in fiscal 2020 consist of $1.00 per Class A common share and $.65 per Class B common share.
OUTLOOK
This annual report contains certain forward-looking statements about Village’s future performance. These statements are based on management’s assumptions and beliefs in light of information currently available. Such statements relate to, for example: economic conditions; uninsured losses; expected pension plan contributions; projected capital expenditures; expected dividend payments; cash flow requirements; inflation expectations; public health conditions; 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 continued uncertainties in the extent and duration of the COVID-19 pandemic and its impact on our business, we will not provide same store sales guidance for fiscal 2022.
•We have budgeted $40,000 for capital expenditures in fiscal 2022. Planned expenditures include three major remodels, several smaller store remodels, the purchase of the Galloway store shopping center, one new Gourmet Garage store, continued expansion of ShopRite from Home and self-checkout, and various merchandising, technology, equipment and facility upgrades.
•The Board’s current intention is to continue to pay quarterly dividends in 2022 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 and debt payments for the foreseeable future.
•We expect our effective income tax rate in fiscal 2022 to be in the range of 30.5% - 31.5%.
•We expect approximately $15,891 of net periodic pension costs in fiscal 2022 related to the three Company sponsored defined benefit pension plans, including a $15,155 non-cash, pre-tax settlement charge representing the remaining unrecognized losses within accumulated other comprehensive loss related to a plan termination expected to occur during fiscal 2022. The Company will fully fund this plan and liquidate all plan assets to purchase annuity contracts from an insurance company for all participants who do not elect a lump sum distribution. As of July 31, 2021, the funded status of this plan is a net liability of $3,844. Contributions to the remaining plans are expected to be immaterial in fiscal 2022.
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 initial COVID-19 health crisis in the United States with much of our trade area under stay-at-home orders from mid-March 2020 through June 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, 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, which could have a material effect on the Company.
•The Fairway acquisition involves a number of risks, uncertainties and challenges, including under-performance relative to our expectations, additional capital requirements, unforeseen expenses or delays, imprecise assumptions or our inability to achieve projected cost savings or other synergies, competitive factors in the marketplace and difficulties integrating the business, including merging company cultures, cultivating brand strategy, expansion of food production and conforming the acquired company's technology, standards, processes, procedures and controls. Sales and operating profits have underperformed compared to projected amounts due primarily to population migration out of Manhattan and less commuter and tourist traffic during the COVID-19 pandemic. 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, disturbances due to social unrest 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, workers' compensation, 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 could have an adverse effect on Village’s results of operations.
•Approximately 89% 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.
•Certain of the multi-employer plans to which we contribute are underfunded. As a result, we expect that contributions to these plans may increase. Additionally, the benefit levels and related items will be issues in the negotiation of our collective bargaining agreements. Under current law, an employer that withdraws or partially withdraws from a multi-employer pension plan may incur a withdrawal liability to the plan, which represents the portion of the plan’s underfunding that is allocable to the withdrawing employer under very complex actuarial and allocation rules. The failure of a withdrawing employer to fund these obligations can impact remaining employers. The amount of any increase or decrease in our required contributions to these multi-employer pension plans will depend upon the outcome of collective bargaining, actions taken by trustees who manage the plans, government regulations, withdrawals by other participating employers and the actual return on assets held in the plans, among other factors.
•The Company uses a combination of insurance and self-insurance to provide for potential liability for workers’ compensation, automobile, general liability, property, director and officers’ liability, and certain employee health care benefits. Any projection of losses is subject to a high degree of variability. Changes in legal claims, trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, and insolvency of insurance carriers could all affect our financial condition, results of operations, or cash flows.
•Our long-lived assets, primarily store property, equipment and fixtures, are subject to periodic testing for impairment. Failure of our asset groups to achieve sufficient levels of cash flow could result in impairment charges on long-lived assets.
•Our goodwill and indefinite-lived intangible assets are tested at the end of each fiscal year, or more frequently if circumstances dictate, for impairment. Failure of acquired businesses to achieve their forecasted expectations could result in impairment charges to goodwill and indefinite-lived intangible assets.
•Our effective tax rate may be impacted by the results of tax examinations and changes in tax laws.
•Wakefern provides all members of the cooperative with information system support that enables us to effectively manage our business data, customer transactions, ordering, communications and other business processes. These information systems are subject to damage or interruption from power outages, computer or telecommunications failures, computer viruses and related malicious software, catastrophic weather events, or human error. Any material interruption of our or Wakefern’s information systems could have a material adverse impact on our results of operations.
Due to the nature of our business, personal information about our customers, vendors and associates is received and stored in these information systems. In addition, confidential information is transmitted through our ShopRite from Home online business at shoprite.com and through the ShopRite app. Unauthorized parties may attempt to access information stored in or to sabotage or disrupt these systems. Wakefern and the Company maintain substantial security measures to prevent and detect unauthorized access to such information, including utilizing third-party service providers for monitoring our networks, security reviews, and other functions. It is possible that computer hackers, cyber terrorists and others may be able to defeat the security measures in place at the Company, Wakefern or those of third-party service providers.
Any breach of these security measures and loss of confidential information, which could be undetected for a period of time, could damage our reputation with customers, vendors and associates, cause Wakefern and Village to incur significant costs to protect any customers, vendors and associates whose personal data was compromised, cause us to make changes to our information systems and could result in government enforcement actions and litigation against Wakefern and/or Village from outside parties. Any such breach could have a material adverse impact on our operations, consolidated financial condition, results of operations, and liquidity if the related costs to Wakefern and Village are not covered or are in excess of carried insurance policies. In addition, a security breach could require Wakefern and Village to devote significant management resources to address problems created by the security breach and restore our reputation.
RELATED PARTY TRANSACTIONS
The Company holds an investment in Wakefern, its principal supplier. Village purchases substantially all of its merchandise from Wakefern in accordance with the Wakefern Stockholder Agreement. As part of this agreement, Village is required to purchase certain amounts of Wakefern common stock. At July 31, 2021, the Company’s indebtedness to Wakefern for the outstanding amount of this stock subscription was $3,423. The maximum per store investment is currently $975. Wakefern
distributes as a “patronage dividend” to each member a share of its earnings in proportion to the dollar volume of purchases by the member from Wakefern during the year. Wakefern provides the Company with support services in numerous areas including advertising, supplies, workers' compensation, liability and property insurance, technology support and other store services. Additional information is provided in Note 3 to the consolidated financial statements.
At July 31, 2021, the Company held variable rate notes receivable due from Wakefern of $27,325 that earn interest at the prime rate plus 1.25% and mature on August 15, 2022 and $27,970 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.
At July 31, 2021, Village had demand deposits invested at Wakefern in the amount of $86,670. These deposits earn overnight money market rates.
The Company subleases the Galloway and Vineland stores from Wakefern under sublease agreements which provided for combined annual rents of $1,355 in both fiscal 2021 and 2020, and aggregate lease obligations of $2,276 at July 31, 2021. Both leases contain normal periodic rent increases and options to extend the lease.
The Company leases a supermarket from a realty firm 30% owned by certain officers of Village. The Company paid rent to related parties under this lease of $704 and $688 in fiscal 2021 and 2020, respectively, and has a related lease obligation of $3,227 at July 31, 2021. This lease expires in fiscal 2026 with options to extend at increasing annual rents.
The Company has ownership interests in three real estate partnerships. Village paid aggregate rents to two of these partnerships for leased stores of $1,579 and $1,455 in fiscal 2021 and 2020, respectively, and has aggregate lease obligations of $12,781 at July 31, 2021 related to these leases.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| | | | | | | | | | | | | |
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) | | |
| July 31, 2021 | | July 25, 2020 | | |
ASSETS | | | | | |
Current Assets | | | | | |
Cash and cash equivalents | $ | 116,314 | | | $ | 111,681 | | | |
Merchandise inventories | 42,633 | | | 42,135 | | | |
Patronage dividend receivable | 11,860 | | | 11,204 | | | |
| | | | | |
Income taxes receivable | 5,111 | | | 12,801 | | | |
Other current assets | 20,398 | | | 19,499 | | | |
Total current assets | 196,316 | | | 197,320 | | | |
Property, equipment and fixtures, net | 256,154 | | | 269,741 | | | |
Operating lease assets | 289,461 | | | 309,756 | | | |
Notes receivable from Wakefern | 55,295 | | | 53,008 | | | |
Investment in Wakefern | 33,004 | | | 29,462 | | | |
Goodwill | 24,190 | | | 24,190 | | | |
Other assets | 34,584 | | | 32,069 | | | |
| | | | | |
Total assets | $ | 889,004 | | | $ | 915,546 | | | |
LIABILITIES and SHAREHOLDERS’ EQUITY | | | | | |
Current Liabilities | | | | | |
Operating lease obligations | $ | 21,627 | | | $ | 19,121 | | | |
Finance lease obligations | 531 | | | 466 | | | |
Notes payable to Wakefern | 632 | | | 303 | | | |
Current portion of debt | 6,976 | | | 6,421 | | | |
Accounts payable to Wakefern | 70,792 | | | 83,045 | | | |
Accounts payable and accrued expenses | 25,098 | | | 29,793 | | | |
Accrued wages and benefits | 25,036 | | | 23,649 | | | |
Income taxes payable | 1,601 | | | — | | | |
Total current liabilities | 152,293 | | | 162,798 | | | |
Long-term debt | | | | | |
Operating lease obligations | 278,135 | | | 298,027 | | | |
Finance lease obligations | 22,325 | | | 23,078 | | | |
Notes payable to Wakefern | 2,791 | | | 882 | | | |
Long-term debt | 66,827 | | | 74,194 | | | |
Total long-term debt | 370,078 | | | 396,181 | | | |
Pension liabilities | 10,182 | | | 6,166 | | | |
Other liabilities | 14,978 | | | 18,081 | | | |
Commitments and Contingencies (Notes 3, 4, 5, 6, 7, 9 and 11) | | | | | |
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 10,978 shares at July 31, 2021 and 10,985 shares at July 25, 2020 | 70,594 | | | 68,072 | | | |
Class B common stock, no par value: Authorized 20,000 shares; issued and outstanding 4,294 shares at July 31, 2021 and July 25, 2020 | 697 | | | 697 | | | |
Retained earnings | 293,185 | | | 286,241 | | | |
Accumulated other comprehensive loss | (9,064) | | | (8,751) | | | |
Less treasury stock, Class A, at cost: 726 shares at July 31, 2021 and July 25, 2020 | (13,939) | | | (13,939) | | | |
Total shareholders’ equity | 341,473 | | | 332,320 | | | |
Total liabilities and shareholders' equity | $ | 889,004 | | | $ | 915,546 | | | |
See notes to consolidated financial statements.
| | | | | | | | | | | | | |
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) |
| Years ended |
July 31, 2021 | | July 25, 2020 | | |
| (53 Weeks) | | (52 Weeks) | | |
| | | | | |
Sales | $ | 2,030,330 | | | $ | 1,804,594 | | | |
Cost of sales | 1,465,286 | | | 1,298,119 | | | |
| | | | | |
Gross profit | 565,044 | | | 506,475 | | | |
| | | | | |
Operating and administrative expense | 498,786 | | | 444,833 | | | |
Depreciation and amortization | 34,195 | | | 31,358 | | | |
Impairment of assets | 2,900 | | | — | | | |
| | | | | |
Operating income | 29,163 | | | 30,284 | | | |
| | | | | |
Interest expense | (3,943) | | | (2,611) | | | |
Interest income | 3,633 | | | 4,060 | | | |
| | | | | |
Income before income taxes | 28,853 | | | 31,733 | | | |
Income taxes | 8,859 | | | 6,794 | | | |
| | | | | |
Net income | $ | 19,994 | | | $ | 24,939 | | | |
| | | | | |
Net income per share: | | | | | |
Class A common stock: | | | | | |
Basic | $ | 1.53 | | | $ | 1.93 | | | |
Diluted | $ | 1.37 | | | $ | 1.72 | | | |
| | | | | |
Class B common stock: | | | | | |
Basic | $ | 1.00 | | | $ | 1.25 | | | |
Diluted | $ | 1.00 | | | $ | 1.25 | | | |
See notes to consolidated financial statements.
| | | | | | | | | | | | | |
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) |
| Years ended |
| July 31, 2021 | | July 25, 2020 | | |
| | | | | |
| | | | | |
Net income | $ | 19,994 | | | $ | 24,939 | | | |
| | | | | |
Other comprehensive income (loss): | | | | | |
Unrealized gain (loss) on interest rate swaps, net of tax (1) | 1,428 | | | (659) | | | |
Amortization of pension actuarial loss, net of tax (2) | 409 | | | 397 | | | |
Pension remeasurement, net of tax (3) | (2,559) | | | (1,307) | | | |
Pension settlement loss, net of tax (4) | 409 | | | 1,160 | | | |
| | | | | |
| | | | | |
Total other comprehensive loss | (313) | | | (409) | | | |
| | | | | |
Comprehensive income | $ | 19,681 | | | $ | 24,530 | | | |
(1)Amount is net of tax of $604 and $262 for 2021and 2020, respectively.
(2)Amounts are net of tax of $179 and $158 for 2021 and 2020, respectively. All amounts are reclassified from accumulated other comprehensive loss to operating and administrative expense.
(3)Amounts are net of tax of $1,484 and $536 for 2021 and 2020, respectively.
(4)Amounts are net of tax of $178 and $444 for 2021 and 2020, respectively. All amounts are reclassified from accumulated other comprehensive loss to operating and administrative expense.
See notes to consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands) |
| | | | | | | | | | | | | | | | | |
Years ended July 31, 2021 and July 25, 2020 |
| | | | | | | | | | | Accumulated Other Comprehensive Loss | | | | | | Total Shareholders' Equity |
| Class A Common Stock | | Class B Common Stock | | | | | Treasury Stock Class A |
| 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 | — | | | — | | | — | | | — | | | 24,939 | | | — | | | — | | | — | | | 24,939 | |
Other comprehensive loss, net of tax of $196 | — | | | — | | | — | | | — | | | — | | | (409) | | | — | | | — | | | (409) | |
Dividends | — | | | — | | | — | | | — | | | (12,965) | | | — | | | — | | | — | | | (12,965) | |
| | | | | | | | | | | | | | | | | |
Treasury stock purchases | — | | | — | | | — | | | — | | | — | | | — | | | 224 | | | (4,389) | | | (4,389) | |
Restricted shares forfeited | (20) | | | (208) | | | — | | | — | | | — | | | — | | | — | | | — | | | (208) | |
Share-based compensation expense | 412 | | | 3,166 | | | — | | | — | | | — | | | — | | | — | | | — | | | 3,166 | |
| | | | | | | | | | | | | | | | | |
Adjustment due to the adoption of ASU 2016-02, net of tax of $1,358 | — | | | — | | | — | | | — | | | 3,514 | | | — | | | — | | | — | | | 3,514 | |
Balance, July 25, 2020 | 10,985 | | | $ | 68,072 | | | 4,294 | | | $ | 697 | | | $ | 286,241 | | | $ | (8,751) | | | 726 | | | $ | (13,939) | | | $ | 332,320 | |
Net income | — | | | — | | | — | | | — | | | 19,994 | | | — | | | — | | | — | | | 19,994 | |
Other comprehensive loss, net of tax of $523 | — | | | — | | | — | | | — | | | — | | | (313) | | | — | | | — | | | (313) | |
Dividends | — | | | — | | | — | | | — | | | (13,050) | | | — | | | — | | | — | | | (13,050) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Restricted shares forfeited | (15) | | | (71) | | | — | | | — | | | — | | | — | | | — | | | — | | | (71) | |
Share-based compensation expense | 8 | | | 2,593 | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,593 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Balance, July 31, 2021 | 10,978 | | | $ | 70,594 | | | 4,294 | | | $ | 697 | | | $ | 293,185 | | | $ | (9,064) | | | 726 | | | $ | (13,939) | | | $ | 341,473 | |
See notes to consolidated financial statements.
| | | | | | | | | | | | | |
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) |
| Years ended |
| July 31, 2021 | | July 25, 2020 | | |
| (53 Weeks) | | (52 Weeks) | | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | |
Net income | $ | 19,994 | | | $ | 24,939 | | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 35,701 | | | 31,701 | | | |
Non-cash share-based compensation | 2,522 | | | 2,958 | | | |
Loss on pension settlements | 587 | | | 1,604 | | | |
Deferred taxes | (2,542) | | | 11,190 | | | |
Provision to value inventories at LIFO | 220 | | | 589 | | | |
Amortization of business acquisition inventory step-up | — | | | 508 | | | |
Impairment of assets | 2,900 | | | — | | | |
Gain on sale of assets | (5,103) | | | (1,252) | | | |
| | | | | |
Changes in assets and liabilities: | | | | | |
Merchandise inventories | (718) | | | 661 | | | |
Patronage dividend receivable | (656) | | | 704 | | | |
Accounts payable to Wakefern | (10,645) | | | 18,866 | | | |
Accounts payable and accrued expenses | (3,741) | | | 6,210 | | | |
Accrued wages and benefits | 1,387 | | | 2,767 | | | |
Income taxes receivable / payable | 9,291 | | | (13,828) | | | |
Other assets and liabilities | 3,495 | | | (3,669) | | | |
| | | | | |
Net cash provided by operating activities | 52,692 | | | 83,948 | | | |
| | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures | (25,233) | | | (54,495) | | | |
Proceeds from the sale of assets | 1,147 | | | 1,261 | | | |
Investment in notes receivable from Wakefern | (2,287) | | | (2,800) | | | |
| | | | | |
| | | | | |
Business acquisitions, net of cash acquired | — | | | (73,622) | | | |
| | | | | |
Net cash used in investing activities | (26,373) | | | (129,656) | | | |
| | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | |
| | | | | |
| | | | | |
Proceeds from issuance of long-term debt | 50,000 | | | 25,500 | | | |
Principal payments of long-term debt | (8,414) | | | (1,666) | | | |
Proceeds from revolving line of credit | — | | | 61,915 | | | |
Payments on revolving line of credit | (50,000) | | | (11,915) | | | |
Debt issuance costs | (222) | | | (212) | | | |
Dividends | (13,050) | | | (12,965) | | | |
Treasury stock purchases, including shares surrendered for withholding taxes | — | | | (4,389) | | | |
| | | | | |
Net cash (used in) provided by financing activities | (21,686) | | | 56,268 | | | |
| | | | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | 4,633 | | | 10,560 | | | |
| | | | | |
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 111,681 | | | 101,121 | | | |
| | | | | |
CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 116,314 | | | $ | 111,681 | | | |
| | | | | |
SUPPLEMENTAL DISCLOSURES OF CASH PAYMENTS MADE FOR: | | | | | |
Interest | $ | 3,943 | | | $ | 2,611 | | | |
Income taxes | 1,475 | | | 9,432 | | | |
| | | | | |
NONCASH SUPPLEMENTAL DISCLOSURES: | | | | | |
Investment in Wakefern and increase in notes payable to Wakefern | $ | 2,872 | | | $ | 382 | | | |
Capital expenditures included in accounts payable and accrued expenses | 3,162 | | | 5,050 | | | |
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts are in thousands, except per share data).
NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Village Super Market, Inc. (the “Company” or “Village”) operates a chain of 34 supermarkets under the ShopRite and Fairway names in New Jersey, Maryland, New York and eastern Pennsylvania and three specialty markets under the Gourmet Garage name in New York City. The Company is a member of Wakefern Food Corporation ("Wakefern"), the nation's largest retailer-owned food cooperative and owner of the ShopRite, Fairway and Gourmet Garage names. This relationship provides Village many of the economies of scale in purchasing, distribution, store and own branded products, advanced retail technology, marketing and advertising associated with chains of greater size and geographic coverage.
Principles of consolidation
The consolidated financial statements include the accounts of Village Super Market, Inc. and its subsidiaries, which are wholly owned. Intercompany balances and transactions have been eliminated.
Fiscal year
The Company and its subsidiaries utilize a 52-53 week fiscal year ending on the last Saturday in the month of July. Fiscal 2021 contains 53 weeks and fiscal 2020 contains 52 weeks.
Use of estimates
In conformity with U.S. generally accepted accounting principles, management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Some of the more significant estimates are patronage dividends, pension accounting assumptions, accounting for contingencies, accounting for derivative instruments and hedging activities, purchase accounting and the impairment of long-lived assets, goodwill and indefinite-lived intangible assets. Actual results could differ from those estimates.
Industry segment
The Company consists of one operating segment, the retail sale of food and nonfood products.
Revenue recognition
Revenue is recognized at the point of sale to the customer, including Pharmacy sales. Digital channel sales are recognized either upon pickup in-store or upon delivery to the customer, including any related service revenues. Sales tax is excluded from revenue.
Discounts provided to customers through store coupons and loyalty programs are recognized as a reduction of sales as products are sold. Discounts provided to customers by vendors are not recognized as a reduction in sales. Rather, the Company records a receivable from the vendor for the difference in sales price and payment received from the customer.
The Company does not recognize revenue when it sells gift cards redeemable at Wakefern member stores. Payment collected from customers for sale of these gift cards is passed on to Wakefern as they can be redeemed at other locations, including those operated by Wakefern or other Wakefern members. Revenue is recognized and a receivable from Wakefern is recorded when a customer redeems these gift cards to purchase products or services.
Disaggregated Revenues
The following table presents the Company's sales by product categories during each of the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended |
| | | | | July 31, 2021 | | July 25, 2020 |
| | | | | | | | | Amount | | % | | Amount | | % |
Center Store (1) | | | | | | | | | $ | 1,218,550 | | | 60.6 | % | | $ | 1,111,751 | | | 61.6 | % |
Fresh (2) | | | | | | | | | 736,657 | | | 35.7 | % | | 616,271 | | | 34.2 | % |
Pharmacy | | | | | | | | | 67,048 | | | 3.3 | % | | 68,508 | | | 3.8 | % |
Other (3) | | | | | | | | | 8,075 | | | 0.4 | % | | 8,064 | | | 0.4 | % |
| | | | | | | | | | | | | | | |
Total Sales | | | | | | | | | $ | 2,030,330 | | | 100.0 | % | | $ | 1,804,594 | | | 100.0 | % |
(1) Consists primarily of grocery, dairy, frozen, health and beauty care, general merchandise and liquor.
(2) Consists primarily of produce, meat, deli, seafood, bakery, prepared foods and floral.
(3) Consists primarily of sales related to other income streams, including service fees related to digital sales, gift card and lottery commissions and wholesale sales.
Cost of sales
Cost of sales consists of costs of inventory, inbound freight charges, and production costs at the Company's centralized commissary, including materials, labor and overhead.
The Company receives vendor allowances and rebates, including the patronage dividend and amounts received as a pass through from Wakefern, related to the Company’s buying and merchandising activities. Vendor allowances and rebates are recognized as a reduction in cost of sales when the related merchandise is sold or when the required contractual terms are completed.
Shipping and handling costs associated with the Company’s digital sales are included in operating and administrative expense.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Included in cash and cash equivalents are proceeds due from credit and debit card transactions, which typically settle within five business days, of $10,638 and $11,535 at July 31, 2021 and July 25, 2020, respectively. Included in cash and cash equivalents at July 31, 2021 and July 25, 2020 are $86,670 and $76,259, respectively, of demand deposits invested at Wakefern at overnight money market rates.
Merchandise inventories
Approximately 62% of merchandise inventories are stated at the lower of LIFO (last-in, first-out) cost or market. If the FIFO (first-in, first-out) method had been used, inventories would have been $15,321 and $15,101 higher than reported in fiscal 2021 and 2020, respectively. All other inventories are stated at the lower of FIFO cost or market.
Property, equipment and fixtures
Property, equipment and fixtures are recorded at cost. Interest cost incurred to finance construction is capitalized as part of the cost of the asset. Maintenance and repairs are expensed as incurred.
Depreciation is provided on a straight-line basis over estimated useful lives of thirty years for buildings, ten years for store fixtures and equipment, and three years for computer equipment, shopping carts and vehicles. Leasehold improvements are amortized over the shorter of the related lease terms or the estimated useful lives of the related assets.
When assets are sold or retired, their cost and accumulated depreciation are removed from the accounts, and any gain or loss is reflected in the consolidated financial statements.
Investments
The Company’s investments in its principal supplier, Wakefern, and a Wakefern affiliate, Insure-Rite, Ltd., are stated at cost (see Note 3). Village evaluates its investments in Wakefern and Insure-Rite, Ltd. for impairment through consideration of previous, current and projected levels of profit of those entities.
The Company’s 20%-50% investments in certain real estate partnerships are accounted for under the equity method. One of these partnerships is a variable interest entity which does not require consolidation as Village is not the primary beneficiary (see Note 7).
Store opening and closing costs
All store opening costs are expensed as incurred. The Company records a liability for the future minimum lease payments and related costs for closed stores from the date of closure to the end of the remaining lease term, net of estimated cost recoveries that may be achieved through subletting, discounted using a risk-adjusted interest rate.
Leases
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. The adoption of this standard also resulted in a change in naming convention for leases classified historically as capital leases to finance leases.
The Company determines if an arrangement is a lease at inception, and recognizes a finance and operating lease liability and asset for all leases with terms of more than 12 months at the lease commencement date. Finance and operating lease liabilities represent the present value of minimum lease payments not yet paid. 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. 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. 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 related to operating leases in rent expense on a straight-line basis over the term of the lease. Finance lease payments are charged to interest expense and depreciation and amortization expense over the lease term. Additional information on leases is provided in Note 7.
Advertising
Advertising costs are expensed as incurred. Advertising expense was $12,268 and $10,904 in fiscal 2021 and 2020, respectively.
Income taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.
The Company recognizes a tax benefit for uncertain tax positions if it is “more likely than not” that the position is sustainable, based on its technical merits. The tax benefit of a qualifying position is the largest amount of tax benefit that is greater than 50% likely of being realized upon effective settlement with a taxing authority having full knowledge of all relevant information.
Derivative Instruments and Hedging Activities
The Company records all derivatives on the balance sheet at fair value. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows are considered cash flow hedges. The Company records changes in the fair value of its interest rate swap contracts to Accumulated other comprehensive loss, net of taxes, as the Company has elected to designate its swaps as cash flow hedges and apply hedge accounting when the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Additional information on derivative and hedging activities is provided in Note 5.
Fair value
Fair value is defined as the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes a three-level hierarchy to prioritize the inputs used in measuring fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability.
Cash and cash equivalents, patronage dividend receivable, income taxes receivable/payable, accounts payable and accrued expenses are reflected in the consolidated financial statements at carrying value, which approximates fair value because of the short-term maturity of these instruments. The carrying values of the Company’s notes receivable from Wakefern approximate their fair value as interest is earned at variable market rates. As the Company’s investment in Wakefern can only be sold to Wakefern at amounts that approximate the Company’s cost, it is not practicable to estimate the fair value of such investment.
Long-lived assets
The Company reviews long-lived assets, such as property, equipment and fixtures and operating lease assets on an individual store basis for impairment when circumstances indicate the carrying amount of an asset group may not be recoverable. Such review analyzes the undiscounted estimated future cash flows from such assets to determine if the carrying value of such assets are recoverable from their respective cash flows. If impairment is indicated, it is measured by comparing the fair value of the long-lived assets to their carrying value. For the year ended July 31, 2021 the Company recorded an impairment of long-lived assets for one Gourmet Garage store of $514.
Goodwill and indefinite-lived intangible assets
Goodwill and indefinite-lived intangible assets are tested at the end of each fiscal year, or more frequently if circumstances dictate, for impairment. The Company's indefinite-lived intangible assets balance of $13,299 and $15,685 as of July 31, 2021 and July 25, 2020, respectively, are related to the Fairway and Gourmet Garage trade names. An impairment loss is recognized to the extent that the carrying amount of goodwill and indefinite-lived intangible assets exceeds its implied fair value. Village considers earnings multiples and other valuation techniques to measure fair value at the reporting unit level, in addition to the value of the Company’s stock. The fair value of trade names are estimated based on the discounted cash flow model using the relief from royalty method.
Manhattan store sales have been impacted by localized residential population migration out of Manhattan and less commuter and tourist traffic during the COVID-19 pandemic. Due to uncertainty regarding the duration and extent of the impact of the COVID-19 pandemic on Manhattan, the Company recognized an impairment charge related to the Fairway trade name of $2,386 for year ended July 31, 2021.
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.
The tables below reconcile the numerators and denominators of basic and diluted net income per share for all periods presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | |
| Class A | | Class B | | Class A | | Class B | | | | |
Numerator: | | | | | | | | | | | |
Net income allocated, basic | $ | 15,095 | | | $ | 4,273 | | | $ | 18,857 | | | $ | 5,363 | | | | | |
Conversion of Class B to Class A shares | 4,273 | | | — | | | 5,363 | | | — | | | | | |
| | | | | | | | | | | |
Net income allocated, diluted | $ | 19,368 | | | $ | 4,273 | | | $ | 24,220 | | | $ | 5,363 | | | | | |
| | | | | | | | | | | |
Denominator: | | | | | | | | | | | |
Weighted average shares outstanding, basic | 9,853 | | | 4,294 | | | 9,794 | | | 4,294 | | | | | |
Conversion of Class B to Class A shares | 4,294 | | | — | | | 4,294 | | | — | | | | | |
| | | | | | | | | | | |
Weighted average shares outstanding, diluted | 14,147 | | | 4,294 | | | 14,088 | | | 4,294 | | | | | |
Net income per share is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | |
| Class A | | Class B | | Class A | | Class B | | | | |
Basic | $ | 1.53 | | | $ | 1.00 | | | $ | 1.93 | | | $ | 1.25 | | | | | |
Diluted | $ | 1.37 | | | $ | 1.00 | | | $ | 1.72 | | | $ | 1.25 | | | | | |
Outstanding stock options to purchase Class A shares of 102 and 154 were excluded from the calculation of diluted net income per share at July 31, 2021 and July 25, 2020, respectively, as a result of their anti-dilutive effect. In addition, 392 and 413 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 July 31, 2021 and July 25, 2020, respectively, due to their anti-dilutive effect.
Share-based compensation
All share-based payments to employees are recognized in the financial statements as compensation costs based on the fair market value on the date of the grant.
Benefit plans
The Company recognizes the funded