0000050493-17-000010.txt : 20170503 0000050493-17-000010.hdr.sgml : 20170503 20170503161854 ACCESSION NUMBER: 0000050493-17-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 49 CONFORMED PERIOD OF REPORT: 20170325 FILED AS OF DATE: 20170503 DATE AS OF CHANGE: 20170503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INGLES MARKETS INC CENTRAL INDEX KEY: 0000050493 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 560846267 STATE OF INCORPORATION: NC FISCAL YEAR END: 0928 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14706 FILM NUMBER: 17809460 BUSINESS ADDRESS: STREET 1: PO BOX 6676 CITY: ASHEVILLE STATE: NC ZIP: 28816 BUSINESS PHONE: 828-669-2941 MAIL ADDRESS: STREET 1: P O BOX 6676 CITY: ASHEVILLE STATE: NC ZIP: 28816 10-Q 1 imkt-20170325x10q.htm 10-Q 20170325 Q2 10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 10-Q



 

 

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

 

For the quarterly period ended March 25,  2017

 

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

 

For the transition period from                  to                 

 

Commission file number 0-14706.

 

 

 

INGLES MARKETS, INCORPORATED

(Exact name of registrant as specified in its charter)

 

 

 

North Carolina

 

56-0846267

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

P.O. Box 6676, Asheville NC

 

28816

(Address of principal executive offices)

 

(Zip Code)

 

(828) 669-2941

Registrant’s telephone number, including area code

 

 

 

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



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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     No .  



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



Large accelerated filer

Accelerated filer

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

Smaller reporting company



Emerging growth company



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



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



As of May 1, 2017 the Registrant had 14,071,794 shares of Class A Common Stock, $0.05 par value per share, outstanding and 6,187,982 shares of Class B Common Stock, $0.05 par value per share, outstanding.



 

1

 


 

 

INGLES MARKETS, INCORPORATED

 

INDEX

 



 

 



 

 

 

  

Page

No.

 

Part I — Financial Information

  

 



 

    Item 1. Financial Statements (Unaudited)

  

 



 

Condensed Consolidated Balance Sheets as of March 25, 2017 and September 24, 2016 

  



 

Condensed Consolidated Statements of Income for the

  

 

Three Months Ended March 25, 2017 and March 26, 2016

  

Six Months Ended March 25, 2017 and March 26, 2016

  



 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended March 25, 2017 and March 26, 2016

  



 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 25, 2017 and March 26, 2016

  



 

Notes to Unaudited Interim Financial Statements

  



 

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

  

13 



 

    Item 3. Quantitative and Qualitative Disclosures About Market Risk

  

21 



 

   Item 4. Controls and Procedures

 

21 



 

Part II – Other Information

  

 



 

 



 

 

    Item 6. Exhibits

  

22 



 

Signatures

  

24 



2

 


 

Part I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS 

 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)









 

 

 

 

 



 

 

 

 

 



March 25,

 

September 24,



2017

 

2016

ASSETS

  

 

  

 

 

Current Assets:

  

 

  

 

 

Cash and cash equivalents

$

6,104,260 

 

$

5,679,509 

Receivables - net

  

63,544,007 

  

 

61,735,387 

Inventories

  

348,067,707 

  

 

343,881,078 

Other current assets

  

12,733,545 

  

 

7,191,465 

Total Current Assets

  

430,449,519 

  

 

418,487,439 

Property and Equipment - Net

  

1,251,373,614 

  

 

1,247,881,773 

Other Assets

  

21,369,878 

  

 

20,109,087 

Total Assets

$

1,703,193,011 

  

$

1,686,478,299 



  

 

  

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

  

 

  

 

 

Current Liabilities:

  

 

  

 

 

Current portion of long-term debt

$

10,061,559 

  

$

10,000,629 

Accounts payable - trade

 

165,344,222 

 

 

155,288,402 

Accrued expenses and current portion of other long-term liabilities

  

64,766,470 

  

 

76,315,606 

Total Current Liabilities

  

240,172,251 

  

 

241,604,637 

Deferred Income Taxes

  

71,413,000 

  

 

71,449,000 

Long-Term Debt

  

866,421,839 

  

 

866,473,465 

Other Long-Term Liabilities

  

38,532,057 

  

 

36,775,587 

Total Liabilities

  

1,216,539,147 

  

 

1,216,302,689 

Stockholders’ Equity

  

 

  

 

 

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

  

 —

  

 

 —

Common stocks:

  

 

  

 

 

Class A, $0.05 par value; 150,000,000 shares authorized; 14,071,251 shares issued and outstanding March 25, 2017; 13,966,476 shares issued and outstanding at September 24, 2016

  

703,563 

 

 

698,324 

Class B, convertible to Class A, $0.05 par value; 100,000,000 shares authorized; 6,188,525 shares issued and outstanding March 25, 2017; 6,293,300 shares issued and outstanding at September 24, 2016

  

309,426 

 

 

314,665 

Paid-in capital in excess of par value

  

12,311,249 

 

 

12,311,249 

Retained earnings

  

473,329,626 

 

 

456,851,372 

Total Stockholders’ Equity

  

486,653,864 

 

 

470,175,610 

Total Liabilities and Stockholders’ Equity

$

1,703,193,011 

 

$

1,686,478,299 



See notes to unaudited condensed consolidated financial statements.

3

 


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)









 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

March 25,

 

March 26,



 

2017

 

2016



 

 

 

 

 

 

Net sales

 

$

946,151,967 

 

$

924,312,049 

Cost of goods sold

 

  

718,066,675 

 

  

695,593,959 

Gross profit

 

  

228,085,292 

 

  

228,718,090 

Operating and administrative expenses

 

  

203,023,241 

 

  

196,147,853 

(Loss) gain from sale or disposal of assets

 

  

(10,139)

 

  

557,409 

Income from operations

 

  

25,051,912 

 

  

33,127,646 

Other income, net

 

  

776,316 

 

  

534,097 

Interest expense

 

  

11,719,781 

 

  

11,225,332 

Income before income taxes

 

  

14,108,447 

 

  

22,436,411 

Income tax expense

 

  

4,957,000 

 

 

8,078,000 

Net income

 

$

9,151,447 

 

$

14,358,411 



 

  

 

 

  

 

Per share amounts:

 

  

 

 

  

 

Class A Common Stock

 

 

 

 

 

 

Basic earnings  per common share

 

$

0.47 

 

$

0.73 

Diluted earnings  per common share

 

$

0.45 

 

$

0.71 

Class B Common Stock

 

 

 

 

 

 

Basic earnings  per common share

 

$

0.42 

 

$

0.66 

Diluted earnings  per common share

 

$

0.42 

 

$

0.66 

Cash dividends per common share

 

 

 

 

 

 

Class A Common Stock

 

$

0.165 

 

$

0.165 

Class B Common Stock

 

$

0.150 

 

$

0.150 





See notes to unaudited condensed consolidated financial statements.

4

 


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 





 

 

 

 

 

 



 

 

 

 

 

 



 

Six Months Ended



 

March 25,

 

March 26,



 

2017

 

2016



 

 

 

 

 

 

Net sales

 

$

1,928,910,306 

 

$

1,875,425,912 

Cost of goods sold

 

  

1,463,740,533 

 

  

1,421,068,490 

Gross profit

 

  

465,169,773 

 

  

454,357,422 

Operating and administrative expenses

 

  

409,319,456 

 

  

390,220,140 

Gain from sale or disposal of assets

 

  

1,367,978 

 

  

621,141 

Income from operations

 

  

57,218,295 

 

  

64,758,423 

Other income, net

 

  

1,439,451 

 

  

1,139,940 

Interest expense

 

  

23,032,412 

 

  

23,202,529 

Income before income taxes

 

  

35,625,334 

 

  

42,695,834 

Income tax expense

 

  

12,650,000 

 

 

15,358,000 

Net income

 

$

22,975,334 

 

$

27,337,834 



 

  

 

 

  

 

Per share amounts:

 

  

 

 

  

 

Class A Common Stock

 

 

 

 

 

 

Basic earnings per common share

 

$

1.17 

 

$

1.39 

Diluted earnings per common share

 

$

1.13 

 

$

1.35 

Class B Common Stock

 

 

 

 

 

 

Basic earnings per common share

 

$

1.06 

 

$

1.26 

Diluted earnings per common share

 

$

1.06 

 

$

1.26 

Cash dividends per common share

 

 

 

 

 

 

Class A Common Stock

 

$

0.33 

 

$

0.33 

Class B Common Stock

 

$

0.30 

 

$

0.30 





See notes to unaudited condensed consolidated financial statements.



5

 


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

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

 

SIX MONTHS ENDED MARCH 25, 2017 AND MARCH 26,  2016 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

Paid-in

  

 

 

 

 

 



 

Class A

 

Class B

 

Capital in

 

 

 

 

 

 



 

Common Stock

 

Common Stock

 

Excess of

 

Retained

 

 

 



  

Shares

  

Amount

 

Shares

 

Amount

 

Par Value

  

Earnings

 

Total



  

 

  

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

Balance, September 26, 2015

 

13,924,651 

  

$

696,233 

 

6,335,125 

 

$

316,756 

 

$

12,311,249 

 

$

415,654,162 

 

$

428,978,400 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

27,337,834 

 

 

27,337,834 

Cash dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(6,495,941)

 

 

(6,495,941)

Common stock conversions

 

18,175 

 

 

909 

 

(18,175)

 

 

(909)

 

 

 —

 

 

 —

 

 

 —

Balance, March 26, 2016

 

13,942,826 

 

$

697,142 

 

6,316,950 

 

$

315,847 

 

$

12,311,249 

 

$

436,496,055 

 

$

449,820,293 

Balance, September 24, 2016

 

13,966,476 

  

$

698,324 

 

6,293,300 

 

$

314,665 

 

$

12,311,249 

 

$

456,851,372 

 

$

470,175,610 

Net income

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

22,975,334 

 

 

22,975,334 

Cash dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(6,497,080)

 

 

(6,497,080)

Common stock conversions

 

104,775 

 

 

5,239 

 

(104,775)

 

 

(5,239)

 

 

 —

 

 

 —

 

 

 —

Balance, March 25, 2017

 

14,071,251 

 

$

703,563 

 

6,188,525 

 

$

309,426 

 

$

12,311,249 

 

$

473,329,626 

 

$

486,653,864 





See notes to unaudited condensed consolidated financial statements.

6

 


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)  





 

 

 

 

 

 



  

 

 

 

 

 



 

Six Months Ended



  

March 25,

 

March 26,



 

2017

 

2016

Cash Flows from Operating Activities:

  

 

 

 

 

 

Net income

  

$

22,975,334 

 

$

27,337,834 

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

  

 

 

 

 

 

Depreciation and amortization expense

 

 

54,913,272 

 

 

52,391,891 

Gain from sale or disposal of assets

 

 

(1,367,978)

 

 

(621,141)

Receipt of advance payments on purchases contracts

  

 

1,170,000 

 

 

2,500,000 

Recognition of advance payments on purchases contracts

  

 

(1,265,876)

 

 

(1,634,696)

Deferred income taxes

  

 

(36,000)

 

 

3,648,000 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Receivables

  

 

(1,808,619)

 

 

(4,204,142)

Inventory

  

 

(4,186,629)

 

 

(2,236,116)

Other assets

 

 

(6,802,871)

 

 

2,090,262 

Accounts payable and accrued expenses

 

 

1,864,809 

 

 

(21,644,196)

Net Cash Provided by Operating Activities

  

 

65,455,442 

 

 

57,627,696 

Cash Flows from Investing Activities:

  

 

 

 

 

 

Proceeds from sales of property and equipment

  

 

1,481,305 

 

 

643,492 

Capital expenditures

  

 

(59,380,630)

 

 

(71,224,192)

Net Cash Used by Investing Activities

  

 

(57,899,325)

 

 

(70,580,700)

Cash Flows from Financing Activities:

  

 

 

 

 

 

Proceeds from short-term borrowings

 

 

251,695,910 

 

 

399,128,977 

Payments on short-term borrowings

 

 

(244,497,799)

 

 

(369,559,814)

Principal payments on long-term borrowings

  

 

(7,832,397)

 

 

(8,558,415)

Dividends paid

  

 

(6,497,080)

 

 

(6,495,941)

Net Cash (Used) Provided by Financing Activities

  

 

(7,131,366)

 

 

14,514,807 

Net Increase in Cash and Cash Equivalents

  

 

424,751 

 

 

1,561,803 

Cash and cash equivalents at beginning of period

  

 

5,679,509 

 

 

7,505,040 

Cash and Cash Equivalents at End of Period

  

$

6,104,260 

 

$

9,066,843 





See notes to unaudited condensed consolidated financial statements.

7

 


 

INGLES MARKETS, INCORPORATED AND SUBSIDIARIES

 

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS 

Six Months Ended March 25, 2017 and March 26, 2016 

 

A. BASIS OF PREPARATION



In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the financial position of Ingles Markets, Incorporated and Subsidiaries (the Company)  as of March 25, 2017, the results of operations for the three-month and six-month periods ended March 25, 2017 and March 26, 2016, and the changes in stockholders’ equity and cash flows for the six-month periods ended March 25, 2017 and March 26, 2016. The adjustments made are of a normal recurring nature. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. It is suggested that these unaudited interim financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended September 24, 2016 filed by the Company under the Securities Exchange Act of 1934 on December 16,  2016.  

 

The results of operations for the three-month and six-month periods ended March 25, 2017 are not necessarily indicative of the results to be expected for the full fiscal year.



B. NEW ACCOUNTING PRONOUNCEMENTS

 

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



In May 2014, the FASB issued Accounting Standards Update ASU 2014-09 “Revenue from Contracts with Customers” (ASU 2014-09).  ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be revenue entitled in exchange for those goods and services.  In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of the ASU to fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, with early adoption permitted.  The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.



C. ALLOWANCE FOR DOUBTFUL ACCOUNTS



Receivables are presented net of an allowance for doubtful accounts of $358,000 at March 25, 2017 and September 24, 2016.  



D.  INCOME TAXES



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



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



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

 

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

 





 

 

 

 

 

 



 

 

 

 

 

 



  

March 25,

 

September 24,



 

2017

 

2016

Property, payroll and other taxes payable

  

$

11,012,798 

 

$

18,883,819 

Salaries, wages and bonuses payable

  

 

24,672,366 

 

  

28,159,164 

Self-insurance liabilities

  

 

13,501,285 

 

  

14,083,047 

Interest payable

 

 

12,472,683 

 

 

12,406,614 

Other

  

 

3,107,338 

 

  

2,782,962 



 

$

64,766,470 

 

$

76,315,606 



Self-insurance liabilities are established for general liability claims, workers’ compensation and employee group medical and dental benefits based on claims filed and estimates of claims incurred but not reported. The Company is insured for covered costs in excess

8

 


 

of $750,000 per occurrence for workers’ compensation, $500,000 for general liability and $450,000 per covered person for medical care benefits for a policy year. The Company’s self-insurance reserves totaled $35.9 million at March 25, 2017 and September 24, 2016.  Of this amount, $13.5 million is accounted for as a current liability and $22.4 million as a long-term liability, which is inclusive of $5.0 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable at March 25, 2017. At September 24, 2016, $14.1 million is accounted for as a current liability and $21.8 million as a long-term liability, which is inclusive of $4.8 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable.  Employee insurance expense, including workers’ compensation and medical care benefits, net of employee contributions, totaled $7.1 million and $10.0 million for the three-month periods ended March 25, 2017 and March 26, 2016, respectively. For the six-month periods ended March 25, 2017 and March 26, 2016, employee insurance expense, net of employee contributions, totaled $16.4 million and $19.2 million, respectively.



F. LONG-TERM DEBT

 

In June 2013, the Company issued $700.0 million aggregate principal amount of senior notes due in 2023 (the “Notes”) in a private placement.  The Notes bear an interest rate of 5.750% per annum and were issued at par.



The Company filed a registration statement with the Securities and Exchange Commission and completed the exchange of private placement notes with registered notes.



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





 



 

Year

 

2018

102.875%

2019

101.917%

2020

100.958%

2021 and thereafter

100.000%



The Company has a $175.0 million line of credit (the “Line”) that matures in June 2018.  The Line provides the Company with various interest rate options based on the prime rate, the Federal Funds Rate, or the London Interbank Offering Rate (“LIBOR”). The Line allows the Company to issue up to $30.0 million in unused letters of credit, of which $9.0 million of unused letters of credit were issued at March 25, 2017.  The Company is not required to maintain compensating balances in connection with the Line.  At March 25, 2017, the Company had $7.2 million of borrowings outstanding under the Line.



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



The Bonds were issued by the Buncombe County Industrial Facilities and Pollution Control Financing Authority and were purchased by certain financial institutions.  Under a Continuing Covenant and Collateral Agency Agreement (the “Covenant Agreement”) between the financial institutions and the Company, the financial institutions would hold the Bonds until June 30, 2021, subject to certain events.   Mandatory redemption of the Bonds by the Company in the annual amount of $4.5 million began on January 1, 2014.  

The Company may redeem the Bonds without penalty or premium at any time prior to June 2021.

 

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



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



The Notes, the Bonds and the Line contain provisions that under certain circumstances would permit lending institutions to terminate or withdraw their respective extensions of credit to the Company. Included among the triggering factors permitting the termination or withdrawal of the Line to the Company are certain events of default, including both monetary and non-monetary defaults, the initiation of bankruptcy or insolvency proceedings, and the failure of the Company to meet certain financial covenants designated in its respective loan documents. The Company was in compliance with all financial covenants related to its borrowings at March 25, 2017.  



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



9

 


 

G. DIVIDENDS

 

The Company paid cash dividends of $0.165 for each share of Class A Common Stock and $0.15 for each share of Class B Common Stock on October 14, 2016 to stockholders of record on October 6, 2016



The Company paid cash dividends of $0.165 for each share of Class A Common Stock and $0.15 for each share of Class B Common Stock on January 12, 2017 to stockholders of record on January 6, 2017.  



For additional information regarding the dividend rights of the Class A Common Stock and Class B Common Stock, please see Note 8, “Stockholders’ Equity” to the Consolidated Financial Statements of the Annual Report on Form 10-K filed by the Company under the Securities Exchange Act of 1934 on December 16,  2016.



H. EARNINGS PER COMMON SHARE



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



The Company calculates earnings per share using the two-class method in accordance with FASB Accounting Standards Codification (“FASB ASC”) Topic 260. 



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

 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended

 

Six Months Ended



 

March 25, 2017

 

March 25, 2017



 

Class A

 

Class B

 

Class A

 

Class B

Numerator: Allocated net income

 

 

               

 

 

 

 

 

 

 

 

 

Net income allocated, basic

 

$

6,513,698 

 

$

2,637,749 

 

$

16,328,364 

 

$

6,646,970 

Conversion of Class B to Class A shares

 

  

2,637,749 

 

 

 —

 

 

6,646,970 

 

 

 —

Net income allocated, diluted

 

$

9,151,447 

 

$

2,637,749 

 

$

22,975,334 

 

$

6,646,970 



 

  

 

 

 

 

 

 

 

 

 

 

Denominator: Weighted average shares outstanding

 

  

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

  

14,038,094 

 

 

6,221,682 

 

 

14,002,300 

 

 

6,257,476 

Conversion of Class B to Class A shares

 

  

6,221,682 

 

 

 —

 

 

6,257,476 

 

 

 —

Weighted average shares outstanding, diluted

 

  

20,259,776 

 

 

6,221,682 

 

 

20,259,776 

 

 

6,257,476 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.47 

 

$

0.42 

 

$

1.17 

 

$

1.06 

Diluted

 

$

0.45 

 

$

0.42 

 

$

1.13 

 

$

1.06 



10

 


 

The per share amounts for the second quarter of fiscal 2016 and the six months ended March 26, 2016 are based on the following amounts:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

  Three Months Ended

 

Six Months Ended



 

March 26, 2016

 

March 26, 2016



 

Class A

 

Class B

 

Class A

 

Class B

Numerator: Allocated net income

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocated, basic

 

$

10,169,757 

 

$

4,188,654 

 

$

19,352,122 

 

$

7,985,712 

Conversion of Class B to Class A shares

 

  

4,188,654 

 

 

 —

 

 

7,985,712 

 

 

 —

Net income allocated, diluted

 

$

14,358,411 

 

$

4,188,654 

 

$

27,337,834 

 

$

7,985,712 



 

  

 

 

 

 

 

 

 

 

 

 

Denominator: Weighted average shares outstanding

 

  

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

  

13,942,826 

 

 

6,316,950 

 

 

13,934,874 

 

 

6,324,902 

Conversion of Class B to Class A shares

 

  

6,316,950 

 

 

 —

 

 

6,324,902 

 

 

 —

Weighted average shares outstanding, diluted

 

  

20,259,776 

 

 

6,316,950 

 

 

20,259,776 

 

 

6,324,902 



 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.73 

 

$

0.66 

 

$

1.39 

 

$

1.26 

Diluted

 

$

0.71 

 

$

0.66 

 

$

1.35 

 

$

1.26 









I. SEGMENT INFORMATION

 

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

 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



  

Three Months Ended

 

Six Months Ended



  

March 25,

  

March 26,

 

March 25,

  

March 26,



 

2017

 

2016

 

2017

 

2016

Revenues from unaffiliated customers:

  

 

 

  

 

 

 

 

 

  

 

 

Grocery

 

$

342,188 

 

$

351,123 

 

$

703,089 

 

$

709,585 

Non-foods

 

 

201,258 

 

 

198,158 

 

 

413,568 

 

 

401,026 

Perishables

 

 

248,673 

 

 

248,343 

 

 

504,522 

 

 

495,227 

Gasoline

 

 

118,083 

 

 

92,187 

 

 

236,606 

 

 

200,704 

Total Retail

  

$

910,202 

  

$

889,811 

 

$

1,857,785 

  

$

1,806,542 

Other

  

 

35,950 

  

 

34,501 

 

 

71,125 

  

 

68,884 

Total revenues from unaffiliated customers

  

$

946,152 

  

$

924,312 

 

$

1,928,910 

  

$

1,875,426 



  

 

 

  

 

 

 

 

 

  

 

 

Income from operations:

  

 

 

  

 

 

 

 

 

  

 

 

Retail

  

$

20,606 

  

$

28,869 

 

$

49,597 

  

$

56,638 

Other

  

 

4,446 

  

 

4,259 

 

 

7,621 

  

 

8,120 

Total income from operations

  

$

25,052 

  

$

33,128 

 

$

57,218 

  

$

64,758 



 

11

 


 







 

 

 

 

 

 



 

 

 

 

 

 



  

March 25,

 

September 24,



 

2017

 

2016

Assets:

  

 

 

 

 

 

Retail

  

$

1,570,727 

 

$

1,555,319 

Other

  

 

134,135 

 

 

133,574 

Elimination of intercompany receivable

  

 

(1,669)

 

 

(2,415)

Total assets

  

$

1,703,193 

 

$

1,686,478 

 

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

The non-foods include alcoholic beverages, tobacco, pharmacy, health and video.

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

 

For the three-month periods ended March 25, 2017 and March 26, 2016, respectively, the fluid dairy had $11.5 million and $11.0 million in sales to the retail grocery segment. The fluid dairy had $23.3 million and $22.3 million in sales to the retail grocery segment for the six-month periods ended March 25, 2017 and March 26, 2016, respectively. These sales have been eliminated in consolidation.



J. FAIR VALUES OF FINANCIAL INSTRUMENTS



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



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



Level 1 Inputs  –

Quoted prices for identical assets or liabilities in active markets.



 

Level 2 Inputs  –

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



 

Level 3 Inputs  –

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



The carrying amount and fair value of the Company’s debt at March 25, 2017 is as follows (in thousands):







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



  

Carrying

  

 

 

  

Fair Value



 

Amount

 

Fair Value

 

Measurements

Senior Notes

  

$

700,000 

  

$

700,875 

 

Level 2

Facility Bonds

  

 

81,620 

  

  

81,620 

 

Level 2

Secured notes payable and other

  

 

87,665 

  

  

87,665 

 

Level 2

Line of credit payable

 

 

7,198 

 

 

7,198 

 

Level 2

Total debt

  

$

876,483 

  

$

877,358 

 

 



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



K. SUBSEQUENT EVENTS



We have evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through the day the financial statements were issued.



12

 


 

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



Overview

 

Ingles, a leading supermarket chain in the Southeast, operates 201 supermarkets in Georgia (71), North Carolina (71), South Carolina (36), Tennessee (21), Virginia (1) and Alabama (1). The Company locates its supermarkets primarily in suburban areas, small towns and rural communities. Ingles supermarkets offer customers a wide variety of nationally advertised food products, including grocery, meat and dairy products, produce, frozen foods and other perishables and non-food products.  Non-food products include fuel centers, pharmacies, health and beauty care products and general merchandise.  In addition, the Company focuses on selling high-growth, high-margin products to its customers through the development of certified organic products, bakery departments and prepared foods including delicatessen sections.  As of March 25, 2017, the Company operated 101 in-store pharmacies and 96 fuel centers. 



Ingles also operates a fluid dairy and earns shopping center rentals. The fluid dairy processing operation sells approximately 25% of its products to the retail grocery segment and approximately 75% of its products to third parties. Real estate ownership is an important component of the Company’s operations, providing both operational and economic benefits.

 

Critical Accounting Policies

 

Critical accounting policies are those accounting policies that management believes are important to the portrayal of the Company’s financial condition and results of operations, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Estimates are based on historical experience and other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Management estimates, by their nature, involve judgments regarding future uncertainties, and actual results may therefore differ materially from these estimates.

 

Self-Insurance

 

The Company is self-insured for workers’ compensation and group medical and dental benefits. Risks and uncertainties are associated with self-insurance; however, the Company has limited its exposure by maintaining excess liability coverage of $750,000 per occurrence for workers’ compensation, $500,000 for general liability, and $450,000 per covered person for medical care benefits for a policy year. Self-insurance liabilities are established based on claims filed and estimates of claims incurred but not reported. The estimates are based on data provided by the respective claims administrators. These estimates can fluctuate if historical trends are not predictive of the future. The majority of the Company’s properties are self-insured for casualty losses and business interruption; however, liability coverage is maintained.  At March 25, 2017,  the Company’s self-insurance reserves totaled $35.9 million.  Of this amount, $13.5 million is accounted for as a current liability and $22.4 million as a long-term liability, which is inclusive of $5.0 million of expected self-insurance recoveries from excess cost insurance or other sources that are recoded as a receivable at March 25, 2017.



Asset Impairments

 

The Company accounts for the impairment of long-lived assets in accordance with FASB ASC Topic 360.  For assets to be held and used, the Company tests for impairment using undiscounted cash flows and calculates the amount of impairment using discounted cash flows. For assets held for sale, impairment is recognized based on the excess of remaining book value over expected recovery value. The recovery value is the fair value as determined by independent quotes or expected sales prices developed by internal associates. Estimates of future cash flows and expected sales prices are judgments based upon the Company’s experience and knowledge of local operations and cash flows that are projected for several years into the future. These estimates can fluctuate significantly due to changes in real estate market conditions, the economic environment, capital spending decisions and inflation. The Company monitors the carrying value of long-lived assets for potential impairment each quarter based on whether any indicators of impairment have occurred.  There were no asset impairments during the six-month period ended March 25, 2017.

 

Vendor Allowances

 

The Company receives funds for a variety of merchandising activities from the many vendors whose products the Company buys for resale in its stores. These incentives and allowances are primarily comprised of volume or purchase based incentives, advertising allowances, slotting fees, and promotional discounts. The purpose of these incentives and allowances is generally to help defray the costs incurred by the Company for stocking, advertising, promoting and selling the vendor’s products. These allowances generally relate to short term arrangements with vendors, often relating to a period of a month or less, and are negotiated on a purchase-by-purchase or transaction-by-transaction basis.  Whenever possible, vendor discounts and allowances that relate to buying and merchandising activities are recorded as a component of item cost in inventory and recognized in merchandise costs when the item is sold. Due to system constraints and the nature of certain allowances, it is sometimes not practicable to apply allowances to the item cost of inventory. In those instances, the allowances are applied as a reduction of merchandise costs using a rational and systematic

13

 


 

methodology, which results in the recognition of these incentives when the inventory related to the vendor consideration received is sold.  Vendor allowances applied as a reduction of merchandise costs totaled $29.0 million and $28.9 million for the fiscal quarters ended March 25, 2017 and March 26, 2016, respectively.  For the six-month periods ended March 25, 2017 and March 26, 2016, vendor allowances applied as a reduction of merchandise costs totaled $59.7 million and $58.5 million, respectively.  Vendor advertising allowances that represent a reimbursement of specific identifiable incremental costs of advertising the vendor’s specific products are recorded as a reduction to the related expense in the period in which the related expense is incurred.  Vendor advertising allowances recorded as a reduction of advertising expense totaled $3.2 million and $3.1 million for the fiscal quarters ended March 25, 2017 and March 26, 2016, respectively.  For the six-month periods ended March 25, 2017 and March 26, 2016, vendor advertising allowances recorded as a reduction of advertising expense totaled $7.1 million and $6.8 million, respectively.



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



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

 

Results of Operations

 

Ingles operates on a 52- or 53-week fiscal year ending on the last Saturday in September. There are 13 and 26  weeks of operations included in the Unaudited Condensed Consolidated Statements of Income for the three- and six-month periods ended March 25, 2017 and March 26, 2016, respectively. Comparable store sales are defined as sales by grocery stores in operation for five full fiscal quarters.  Sales from replacement stores, major remodels and the addition of fuel stations to existing stores are included in the comparable store sales calculation from the date thereof. A replacement store is a new store that is opened to replace an existing nearby store that is closed. A major remodel entails substantial remodeling of an existing store and includes additional retail square footage. For the three- and six-month periods ended March 25, 2017 and March 26, 2016, comparable store sales include 199 and 200 stores, respectively.

 

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

 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



  

Three Months Ended

  

Six Months Ended



  

March 25,

 

March 26,

  

March 25,

 

March 26,



 

2017

 

2016

 

2017

 

2016

Net sales

  

100.0 

%

 

100.0 

%

  

100.0 

%

 

100.0 

%

Gross profit

  

24.1 

%

 

24.7 

%

  

24.1 

%

 

24.2 

%

Operating and administrative expenses

  

21.5 

%

 

21.2 

%

  

21.2 

%

 

20.8 

%

Income from operations

  

2.6 

%

 

3.6 

%

  

3.0 

%

 

3.5 

%

Other income, net

  

0.1 

%

 

0.1 

%

  

0.1 

%

 

0.1 

%

Interest expense

  

1.2 

%

 

1.2 

%

  

1.2 

%

 

1.2 

%

Income tax expense

  

0.5 

%

 

0.9 

%

  

0.7 

%

 

0.8 

%

Net income

  

1.0 

%

 

1.6 

%

  

1.2 

%

 

1.5 

%

 

Three Months Ended March 25, 2017 Compared to the Three Months Ended March 26, 2016



Net income for the second quarter of fiscal 2017 totaled $9.2 million, compared with net income of $14.4 million earned for the second quarter of fiscal 2016Retail dollar sales and gross profit (both excluding gasoline) decreased slightly, partly due to the timing of the Easter holiday.  The 2016 Easter holiday occurred in March so last year’s second quarter benefited from the extra sales and gross profit.  The 2017 Easter holiday occurred  in April, so this year’s third quarter will benefit.  Operating expenses also increased, primarily in personnel costs.



Net Sales. Net sales increased by $21.9  million, or 2.4% to $946.2  million for the three months ended March 25, 2017 from $924.3 million for the three months ended March 26, 2016Higher gasoline sales (in both dollars and gallons) helped offset the Easter effect on sales described above.    Comparing the second quarter of fiscal 2017 with the second quarter of fiscal 2016, gasoline sales dollars increased 28.3%  due to a 25.5% increase in the average sales price per gallon.  Gallons sold increased 2.3%  over the same comparable periods.  Excluding gasoline sales and the effect of extra Easter sales in fiscal 2016, total grocery comparable store sales decreased

14

 


 

0.3% over the comparative fiscal second quarters.  Comparing the second quarters of fiscal year 2017 and 2016 (and excluding gasoline), the number of customer transactions increased 0.2% and the average transaction size decreased 0.8%. 



Ingles operated 201 and 202 stores at March 25, 2017 and March 26, 2016, respectively.  Retail square feet totaled 11.2 million square feet at March 25, 2017 and 11.1 million square feet at March 26, 2016.   During the last twelve months the Company opened one store and closed two stores, one of which is being rebuilt and will open later this fiscal year.



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









 

 

 

 

 

 



 

 

 

 

 

 



  

Three Months Ended



  

March 25,

  

March 26,



 

2017

 

2016

Grocery

  

$

342,188 

  

$

351,123 

Non-foods

  

 

201,258 

  

 

198,158 

Perishables

 

 

248,673 

 

 

248,343 

Gasoline

  

 

118,083 

  

 

92,187 

Total retail

  

$

910,202 

  

$

889,811 



The grocery category includes grocery, dairy and frozen foods.

The non-foods category includes alcoholic beverages, tobacco, pharmacy, health and video.

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



Changes in retail sales for the quarter ended March 25, 2017 are summarized as follows (in thousands):









 

 

 



  

 

 

Total retail sales for the three months ended March 26, 2016

  

$

889,811 

Comparable store sales increase (including gasoline)

  

 

21,647 

Effect of Easter in second quarter of fiscal 2016

 

 

(7,084)

Impact of stores opened in fiscal 2016 and 2017

  

 

7,459 

Impact of stores closed in fiscal 2016 and 2017

  

 

(1,607)

Other

 

 

(24)

Total retail sales for the three months ended March 25, 2017

  

$

910,202 

 

Gross Profit. Gross profit for the three-month period ended March 25, 2017 decreased $0.6 million, or 0.3%, to $228.1 million, or 24.1% of sales, compared with gross profit $228.7 million, or 24.7% of sales, for the three-month period ended March 26, 2016.

 

Excluding gasoline sales, retail grocery segment gross profit as a percentage of sales increased seven basis points comparing the second quarter of fiscal 2017 compared with the same fiscal 2016 period.  Gasoline gross profit dollars were higher for the quarter ended March 25, 2017 compared with the quarter ended March 26, 2016. 



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

  

Operating and Administrative Expenses. Operating and administrative expenses increased $6.9 million, or 3.5%, to $203.0 million for the three months ended March 25, 2017, from $196.1 million for the three months ended March 26, 2016.  As a percentage of sales, operating and administrative expenses were 21.5%  for the three months ended March 25, 2017 compared with 21.2% for the three months ended March 26, 2016.  Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were 24.3% of sales for the second fiscal 2017 quarter and 23.4% for the second fiscal 2016 quarter.

15

 


 



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

 





 

 

 

 

 

 



 

 

 

Increase



 

Increase

 

(decrease)



 

(decrease)

 

as a % of



 

in millions

 

sales

Salaries and wages

  

$

6.4

 

0.68 

%

Insurance

  

$

(1.6)

 

(0.17)

%

Depreciation and amortization

  

$

1.3

 

0.13 

%

Taxes and licenses

 

$

0.8

 

0.08 

%

Advertising and promotion

 

$

(0.7)

 

(0.08)

%

 

Salaries and wages expenses increased due to the additional labor hours required in part to accommodate in-store merchandising changes.    Competition for labor has also increased in the Company’s market area.



Insurance expense decreased due to lower claims and reserves under the Company’s self-insurance programs.



Depreciation and amortization increases as a result of the Company’s capital expenditure programs, including new stores and remodeling projects.



Taxes and licenses increased due to expansion of the Company’s property, rolling stock and product offerings.



Advertising and promotion decreased from savings primarily in its print related advertising.



Interest Expense. Interest expense increased $0.5 million for the three-month period ended March 25, 2017 to $11.7 million from $11.2 million for the three-month period ended March 26, 2016.  The increase is attributable to higher borrowing on the Company’s line of credit during the quarter to accommodate increased inventory levels, tax payments and capital expenditures.  Total debt at March 2017 was $876.5 million compared with $907.7 million at March 2016.

 

Income Taxes. Income tax expense as a percentage of pre-tax income was 35.1% for the quarter ended March 25, 2017 compared with 36.0% for the quarter ended March 26, 2016  

 

Net Income. Net income totaled $9.2 million for the three-month period ended March 25, 2017 compared with $14.4 million for the three-month period ended March 26, 2016.   Net income, as a percentage of sales, was 1.0%  for the quarter ended March 25, 2017 and 1.6% for the quarter ended March 26, 2016.  Basic and diluted earnings per share for Class A Common Stock were $0.47 and $0.45,  respectively, for the quarter ended March 25, 2017 compared with $0.73 and $0.71, respectively, for the quarter ended March 26, 2016.  Basic and diluted earnings per share for Class B Common Stock were $0.42 for the quarter ended March 25, 2017 and $0.66 for the quarter ended March 26, 2016.



Six Months Ended March 25, 2017 Compared to the Six Months Ended March 26, 2016 

 

Net income for the first half of fiscal 2017 totaled $23.0 million compared with net income of $27.3 million earned for the comparable fiscal 2016 period.  Total sales and gross profit increased comparing the six month fiscal 2017 and fiscal 2016 periods, but operating expenses (notably personnel costs) increased to a greater extent.



Net Sales. Net sales totaled $1.93 billion for the six months period ended March 25, 2017, 2.9% higher than the net sales of $1.88 billion for the six month period ended March 26, 2016Retail, gasoline and fluid dairy sales all increased.



16

 


 

Grocery segment comparable store sales, excluding the effect of gasoline and extra Easter sales, increased 0.8%.  The number of customer transactions (excluding gasoline) increased 1.2%, and the average transaction size (excluding gasoline) decreased by 0.2%.



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







 

 

 

 

 

 



 

 

 

 

 

 



  

Six Months Ended



  

March 25,

  

March 26,



 

2017

 

2016

Grocery

  

$

703,089 

  

$

709,585 

Non-foods

  

 

413,568 

  

 

401,026 

Perishables

 

 

504,522 

 

 

495,227 

Gasoline

  

 

236,606 

  

 

200,704 

Total retail

  

$

1,857,785 

  

$

1,806,542 



The grocery category includes grocery, dairy and frozen foods.

The non-foods category includes alcoholic beverages, tobacco, pharmacy, health and video.

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



Changes in retail grocery sales for the six months ended March 25, 2017 are summarized as follows (in thousands):







 

 

 



  

 

 

Total retail sales for the six months ended March 26, 2016

  

$

1,806,542 

Comparable store sales increase (including gasoline)

  

 

44,367 

Effect of Easter in second quarter of fiscal 2016

 

 

(7,084)

Impact of stores opened in fiscal 2016 and 2017

  

 

17,045 

Impact of stores closed in fiscal 2016 and 2017

  

 

(3,029)

Other

 

 

(56)

Total retail sales for the six months ended March 25, 2017

  

$

1,857,785 



Sales growth for the remainder of fiscal 2017 will depend upon the pace of economic improvement, inflation and market prices for gasoline and raw milkIn addition to new stores opening in fiscal 2017, the Company expects that the maturation of previous new and expanded stores will contribute to sales growthThe Company continues to remodel existing stores in order to increase sales and gross profit at a lower cost compared with the construction cost of adding additional square footage.



Gross Profit. Gross profit for the six months ended March 25, 2017 increased $10.8 million, or 2.4%, to $465.2 million compared with $454.4 million, for the six months ended March 26, 2016.   As a percent of sales, gross profit was 24.1% for the six months ended March 25, 2017 compared with 24.2% for the six months ended March 26, 2016



Excluding gasoline sales, retail grocery segment gross profit as a percentage of sales increased 24 basis points comparing the first half of fiscal 2017 compared with the same fiscal 2016 period. 



Operating and Administrative Expenses. Operating and administrative expenses increased $19.1 million to $409.3 million for the six months ended March 25, 2017, from $390.2 million for the six months ended March 26, 2016.   As a percentage of sales, operating and administrative expenses were 21.2% for the six-month period ended March 25, 2017 compared with 20.8% for the six-month period ended March 26, 2016.   Excluding gasoline sales and associated gasoline operating expenses (primarily payroll), operating expenses were 24.0% of sales for the first six-month period of fiscal 2017 compared with 23.1% for the first six-month period of fiscal 2016



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





 

 

 

 

 

 



 

 

 

Increase



 

Increase

 

(decrease)



 

(decrease)

 

as a % of



 

in millions

 

sales

Salaries and wages

  

$

13.4

 

0.70 

%

Repairs and maintenance

 

$

2.4

 

0.12 

%

Depreciation and amortization

 

$

2.4

 

0.12 

%

Advertising and promotion

 

$

(1.8)

 

(0.09)

%

Bank charges

  

$

1.4

 

0.07 

%

 

Salaries and wages increased due to the additional labor hours required in part to accommodate in-store merchandising changes.    Competition for labor has also increased in the Company’s market area.



Repairs and maintenance increased due to more sophisticated equipment and updated lighting in our stores, and due also to a higher level of building maintenance.



Depreciation and amortization increased as a result of the Company’s capital expenditure programs, including new stores and remodeling projects.



Advertising and promotion decreased from savings primarily in its print-related advertising.