Part I – Financial Information [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents unaudited condensed consolidated financial statements, including balance sheets, income statements, equity changes, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in millions) | Metric | December 28, 2024 | September 28, 2024 | | :-------------------------------- | :------------------ | :------------------- | | Total Assets | $2,493.3 | $2,527.9 | | Total Liabilities | $931.7 | $982.1 | | Total Stockholders' Equity | $1,561.6 | $1,545.7 | | Cash and cash equivalents | $269.5 | $353.7 | [Condensed Consolidated Statements of Income and Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) Condensed Consolidated Statements of Income and Comprehensive Income (in millions, except per share data) | Metric | Three Months Ended Dec 28, 2024 | Three Months Ended Dec 30, 2023 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Net sales | $1,288.1 | $1,481.1 | | Gross profit | $301.1 | $348.8 | | Income from operations | $23.6 | $59.6 | | Net income | $16.6 | $43.4 | | Basic earnings per common share (Class A) | $0.89 | $2.33 | | Diluted earnings per common share (Class A) | $0.87 | $2.28 | | Basic earnings per common share (Class B) | $0.81 | $2.12 | | Diluted earnings per common share (Class B) | $0.81 | $2.12 | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) - Total Stockholders' Equity increased from **$1.55 billion** at September 28, 2024, to **$1.56 billion** at December 28, 2024[13](index=13&type=chunk) - Net income for the three months ended December 28, 2024, was **$16.6 million**[13](index=13&type=chunk) - Cash dividends paid during the period totaled **$3.07 million**[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in millions) | Cash Flow Activity | Three Months Ended Dec 28, 2024 | Three Months Ended Dec 30, 2023 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Net Cash (Used) Provided by Operating Activities | $(43.6) | $15.5 | | Net Cash Used by Investing Activities | $(33.9) | $(62.4) | | Net Cash Used by Financing Activities | $(6.7) | $(6.7) | | Net Decrease in Cash and Cash Equivalents | $(84.2) | $(53.5) | [Notes to Unaudited Interim Financial Statements](index=7&type=section&id=Notes%20to%20Unaudited%20Interim%20Financial%20Statements) [A. BASIS OF PREPARATION](index=7&type=section&id=A.%20BASIS%20OF%20PREPARATION) - The unaudited interim financial statements include all necessary normal recurring adjustments[17](index=17&type=chunk) - These statements should be read in conjunction with the audited financial statements in the Annual Report on Form 10-K for the year ended September 28, 2024[17](index=17&type=chunk) - Results for the three months ended December 28, 2024, are not necessarily indicative of the full fiscal year[18](index=18&type=chunk) [B. NEW ACCOUNTING PRONOUNCEMENTS](index=7&type=section&id=B.%20NEW%20ACCOUNTING%20PRONOUNCEMENTS) - The Company adopted SOFR for LIBOR-based debt and interest rate swaps, which did not materially impact financial statements[19](index=19&type=chunk) - The Company is evaluating the impacts of ASU 2023-09 (Income Taxes Disclosures), ASU 2023-07 (Segment Reporting), and ASU 2024-03 (Disaggregation of Income Statement Expenses) on its consolidated financial statements[20](index=20&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) [C. SHORT TERM INVESTMENTS](index=7&type=section&id=C.%20SHORT%20TERM%20INVESTMENTS) - The Company purchases financial products like money market funds, bonds, and mutual funds as short-term investments[23](index=23&type=chunk) - The carrying values of these short-term investments approximate fair value due to their liquidity[23](index=23&type=chunk) [D. ALLOWANCE FOR DOUBTFUL ACCOUNTS](index=8&type=section&id=D.%20ALLOWANCE%20FOR%20DOUBTFUL%20ACCOUNTS) Allowance for Doubtful Accounts (in thousands) | Metric | December 28, 2024 | September 28, 2024 | | :-------------------------------- | :------------------ | :------------------- | | Allowance for doubtful accounts | $483.9 | $474.7 | [E. INCOME TAXES](index=8&type=section&id=E.%20INCOME%20TAXES) - The Company's effective tax rate differs from the federal statutory rate primarily due to state income taxes and tax credits[25](index=25&type=chunk) - Unrecognized tax benefits and related interest and penalties are insignificant and not expected to change materially within the next twelve months[25](index=25&type=chunk) [F. ACCRUED EXPENSES AND CURRENT PORTION OF OTHER LONG-TERM LIABILITIES](index=8&type=section&id=F.%20ACCRUED%20EXPENSES%20AND%20CURRENT%20PORTION%20OF%20OTHER%20LONG-TERM%20LIABILITIES) Accrued Expenses and Current Portion of Other Long-Term Liabilities (in millions) | Category | December 28, 2024 | September 28, 2024 | | :-------------------------------- | :------------------ | :------------------- | | Property, payroll and other taxes payable | $10.8 | $22.6 | | Salaries, wages and bonuses payable | $33.1 | $48.9 | | Self-insurance liabilities | $16.6 | $16.5 | | Interest payable | $1.4 | $5.0 | | Other | $6.9 | $6.2 | | Total | $68.8 | $99.1 | - Self-insurance reserves totaled **$36.7 million** at December 28, 2024, including **$4.0 million** of expected recoveries[26](index=26&type=chunk) - Employee insurance expense decreased to **$11.2 million** for the three months ended December 28, 2024, from **$13.1 million** in the prior year[27](index=27&type=chunk) [G. LONG-TERM DEBT](index=8&type=section&id=G.%20LONG-TERM%20DEBT) - The Company has **$350.0 million** aggregate principal amount of 4.00% senior notes due 2031[29](index=29&type=chunk) - A **$150.0 million** line of credit matures in June 2026, with no outstanding borrowings at December 28, 2024[29](index=29&type=chunk) - The outstanding balance of Facility Bonds due 2036 was **$49.9 million** as of December 28, 2024[31](index=31&type=chunk) - The Company has interest rate swap agreements hedging SOFR-based floating rate loans, with current notional amounts of **$17.0 million** (fixed 3.962%) and **$115.0 million** (fixed 2.998%)[33](index=33&type=chunk)[34](index=34&type=chunk) - The Company was in compliance with all financial covenants at December 28, 2024[36](index=36&type=chunk) [H. DIVIDENDS](index=10&type=section&id=H.%20DIVIDENDS) Dividends per Share | Stock Class | Dividend per share (Oct 17, 2024) | Dividend per share (Jan 16, 2025) | | :---------------- | :-------------------------------- | :-------------------------------- | | Class A Common Stock | $0.165 | $0.165 | | Class B Common Stock | $0.15 | $0.15 | [I. EARNINGS PER COMMON SHARE](index=10&type=section&id=I.%20EARNINGS%20PER%20COMMON%20SHARE) - Class A Common Stock has one vote per share and is entitled to receive cash dividends equal to 110% of any cash dividend paid on Class B Common Stock[42](index=42&type=chunk) - Class B Common Stock has ten votes per share and is convertible into one share of Class A Common Stock at any time[42](index=42&type=chunk) - Earnings per share are calculated using the two-class method[43](index=43&type=chunk) Earnings Per Common Share | EPS Type | Class | Three Months Ended Dec 28, 2024 | Three Months Ended Dec 30, 2023 | | :---------------- | :---- | :------------------------------ | :------------------------------ | | Basic | Class A | $0.89 | $2.33 | | Diluted | Class A | $0.87 | $2.28 | | Basic | Class B | $0.81 | $2.12 | | Diluted | Class B | $0.81 | $2.12 | [J. LEASES](index=10&type=section&id=J.%20LEASES) - Operating lease rent expense totaled **$1.7 million** for the three months ended December 28, 2024[47](index=47&type=chunk) - Finance lease cost was **$210.0 thousand** for the three months ended December 28, 2024[48](index=48&type=chunk) - The weighted average remaining lease term for operating leases was **15.0 years** as of December 28, 2024[49](index=49&type=chunk) - The Company owns and operates 100 shopping centers, leasing portions to others under non-cancelable operating lease agreements[50](index=50&type=chunk) Rents Earned (in millions) | Rents Earned | Three Months Ended Dec 28, 2024 | | :-------------------------------- | :------------------------------ | | Base rentals | $6.6 | | Variable rentals | $0.08 | | Total | $6.7 | [K. SEGMENT INFORMATION](index=12&type=section&id=K.%20SEGMENT%20INFORMATION) - The Company operates one primary business segment: retail grocery sales; 'Other' includes fluid dairy and shopping center rentals[54](index=54&type=chunk) Revenue by Category (in millions) | Revenue Category | Three Months Ended Dec 28, 2024 | Three Months Ended Dec 30, 2023 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Grocery | $477.5 | $521.8 | | Non-foods | $289.4 | $358.1 | | Perishables | $334.3 | $368.0 | | Fuel | $143.8 | $177.9 | | Total Retail | $1,245.1 | $1,425.8 | | Other | $43.1 | $55.3 | | Total revenues from unaffiliated customers | $1,288.1 | $1,481.1 | Income from Operations by Segment (in millions) | Income from Operations | Three Months Ended Dec 28, 2024 | Three Months Ended Dec 30, 2023 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Retail | $21.2 | $53.4 | | Other | $2.4 | $6.2 | | Total income from operations | $23.6 | $59.6 | [L. FAIR VALUES OF FINANCIAL INSTRUMENTS](index=12&type=section&id=L.%20FAIR%20VALUES%20OF%20FINANCIAL%20INSTRUMENTS) - The fair values of the Company's debt, interest rate swaps, and non-qualified retirement plan assets are estimated using Level 2 inputs[59](index=59&type=chunk) Fair Values of Financial Instruments (in millions) | Financial Instrument | Carrying Amount (Dec 28, 2024) | Fair Value (Dec 28, 2024) | | :-------------------------------- | :----------------------------- | :------------------------ | | Senior Notes due 2031 | $350.0 | $307.1 | | Facility Bonds due 2036 | $49.9 | $49.9 | | Secured notes payable and other | $129.5 | $129.5 | | Interest rate swaps derivative contract assets | $12.0 | $12.0 | | Non-qualified retirement plan assets | $27.6 | $27.6 | [M. COMMITMENTS AND CONTINGENCIES](index=13&type=section&id=M.%20COMMITMENTS%20AND%20CONTINGENCIES) - Management believes that the ultimate liability from pending legal proceedings and claims will not materially affect the Company's financial position, results of operations, or cash flows[60](index=60&type=chunk) - The Company is assessing inventory loss claims related to Hurricane Helene, but recovery was not yet deemed probable as of December 28, 2024[61](index=61&type=chunk) [N. RELATED PARTY TRANSACTIONS](index=13&type=section&id=N.%20RELATED%20PARTY%20TRANSACTIONS) - No short-term non-interest bearing loans were made, repaid, or outstanding to the Company's Investment/Profit Sharing Plan during the three months ended December 28, 2024[62](index=62&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=13&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, Hurricane Helene's impact, critical accounting policies, liquidity, capital, seasonality, and inflation [Overview](index=13&type=section&id=Overview) - Ingles operates 198 supermarkets across North Carolina, Georgia, South Carolina, Tennessee, Virginia, and Alabama[63](index=63&type=chunk) - Three of the four stores temporarily closed due to Hurricane Helene are expected to reopen during 2025[63](index=63&type=chunk) - The Company offers a wide variety of nationally advertised food products, non-food products (fuel, pharmacies, health/beauty/cosmetics, general merchandise), and private label items, with a focus on organic products, bakery, and prepared foods[64](index=64&type=chunk) [Impact of Hurricane Helene](index=13&type=section&id=Impact%20of%20Hurricane%20Helene) - The Company recognized an impairment loss of **$30.4 million** for inventory and **$4.5 million** for property and equipment for the year ended September 28, 2024, due to Hurricane Helene[65](index=65&type=chunk) - Insurance proceeds of **$1.0 million** related to property loss were received in October 2024[66](index=66&type=chunk) - Approximately **$5.4 million** in cleanup and repair costs were incurred during the quarter ended December 28, 2024, as a result of Hurricane Helene[66](index=66&type=chunk) - An estimated **$55 to $65 million** of revenue was lost during the three-week period immediately following the storm due to store closures and electronic payment disruptions[77](index=77&type=chunk) [Critical Accounting Policies and Estimates](index=14&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) [Self-Insurance](index=14&type=section&id=Self-Insurance) - The Company is self-insured for workers' compensation, general liability, and group medical and dental benefits, with excess liability coverage[68](index=68&type=chunk) - Self-insurance reserves totaled **$36.7 million** at December 28, 2024, including **$4.0 million** of expected self-insurance recoveries[68](index=68&type=chunk) [Asset Impairments](index=14&type=section&id=Asset%20Impairments) - The Company tests for impairment of long-lived assets using undiscounted cash flows and calculates impairment using discounted cash flows for assets held for use[69](index=69&type=chunk) - There were no asset impairments during the three-month period ended December 28, 2024[69](index=69&type=chunk) [Vendor Allowances](index=14&type=section&id=Vendor%20Allowances) - Vendor allowances are primarily recorded as a component of item cost in inventory and recognized in merchandise costs when the item is sold[70](index=70&type=chunk) Vendor Allowances (in millions) | Metric | Three Months Ended Dec 28, 2024 | Three Months Ended Dec 30, 2023 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Vendor allowances (reduction of merchandise costs) | $35.1 | $36.8 | | Vendor advertising allowances (reduction of advertising expense) | $1.3 | $1.9 | [Results of Operations](index=15&type=section&id=Results%20of%20Operations) - Net income for the first quarter of fiscal 2025 totaled **$16.6 million**, a significant decrease from **$43.4 million** in the first quarter of fiscal 2024[76](index=76&type=chunk) - Net sales decreased by **$193.0 million**, or **13.0%**, to **$1.29 billion**, with an estimated **$55 to $65 million** revenue loss due to Hurricane Helene[77](index=77&type=chunk) - Comparable store sales (excluding fuel) decreased by **9.4%** over the comparative fiscal quarter[77](index=77&type=chunk) Key Financial Metrics (in millions, except percentages) | Metric | Three Months Ended Dec 28, 2024 | Three Months Ended Dec 30, 2023 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Gross profit | $301.1 | $348.8 | | Gross profit as % of sales | 23.4% | 23.6% | | Operating and administrative expenses | $280.7 | $289.8 | | Operating and administrative expenses as % of sales | 21.8% | 19.6% | | Interest expense | $5.0 | $5.7 | | Income tax expense | $5.3 | $14.1 | | Effective tax rate | 24.1% | 24.6% | - Salaries and wages decreased by **$9.7 million** due to the impact of Hurricane Helene, including temporary store closures and associate difficulties[81](index=81&type=chunk) - Repairs and maintenance expense increased by **$2.8 million** due to cleanup and repairs required by Hurricane Helene[82](index=82&type=chunk) [Liquidity and Capital Resources](index=16&type=section&id=Liquidity%20and%20Capital%20Resources) [Capital Expenditures](index=16&type=section&id=Capital%20Expenditures) - Capital expenditures totaled **$37.8 million** for the three months ended December 28, 2024[87](index=87&type=chunk) - Capital expenditure plans for fiscal 2025 are approximately **$120 to $160 million**, primarily for store improvements, re-opening hurricane-damaged stores, remodeling, new store construction, and technology upgrades[88](index=88&type=chunk) - Annual capital expenditures are expected to be in the range of **$100 to $160 million** going forward to maintain a modern store base[90](index=90&type=chunk) [Liquidity](index=17&type=section&id=Liquidity) - Net cash used for operations was **$43.6 million** for the three months ended December 28, 2024, compared to **$15.5 million** provided by operations in the prior year, primarily due to lower net income and higher working capital needs[92](index=92&type=chunk) - Net cash used by investing activities decreased to **$33.9 million** from **$62.4 million** in the prior year, primarily due to reduced capital expenditures[93](index=93&type=chunk) - The Company has a **$150.0 million** line of credit with no outstanding borrowings at December 28, 2024[95](index=95&type=chunk) - The Company believes its financial resources, including operating cash flow and available financing, will be sufficient to meet planned capital expenditures and working capital requirements for the foreseeable future[103](index=103&type=chunk) [Quarterly Cash Dividends](index=18&type=section&id=Quarterly%20Cash%20Dividends) - The Company has paid regular quarterly cash dividends of **$0.165** per share on Class A Common Stock and **$0.15** per share on Class B Common Stock since December 27, 1993[105](index=105&type=chunk) - The continuation and amount of future dividends are at the discretion of the Board of Directors and subject to certain debt covenant restrictions[106](index=106&type=chunk) [Seasonality](index=18&type=section&id=Seasonality) - Grocery sales are traditionally higher in the first fiscal quarter due to Thanksgiving and Christmas[107](index=107&type=chunk) - The second fiscal quarter typically has the lowest sales, predominantly due to lower occupancy of seasonal homes[107](index=107&type=chunk) - Sales in the third and fourth quarters are usually positively affected by the return of customers to seasonal homes[107](index=107&type=chunk) [Impact of Inflation](index=18&type=section&id=Impact%20of%20Inflation) - Inflation affects labor costs, and energy costs impact fuel sales, distribution expenses, and plastic supply costs[108](index=108&type=chunk) Consumer Price Index (Twelve Months Ended December 2024) | Consumer Price Index (Twelve Months Ended December 2024) | | | :------------------------------------------------ | :------- | | All items | 2.9% | | Food at home | 1.8% | | Energy | (0.5)% | [Forward Looking Statements](index=18&type=section&id=Forward%20Looking%20Statements) - The report contains forward-looking statements that are subject to significant risks and uncertainties, many beyond the Company's control[110](index=110&type=chunk) - Factors that could cause actual results to differ materially include competition, economic conditions, natural disasters (e.g., COVID-19, Hurricane Helene), labor and utility costs, and changes in laws and regulations[110](index=110&type=chunk)[111](index=111&type=chunk) - The Company does not undertake any obligation to update these statements to reflect future events or developments, except as required by applicable law[112](index=112&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=19&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company uses interest rate swaps for **$132.0 million** notional amount, not for speculation, with no material changes in market risk - The Company is a party to interest rate swap agreements for a current aggregate notional amount of **$132.0 million**[113](index=113&type=chunk) - The Company does not typically utilize financial instruments for trading or other speculative purposes[113](index=113&type=chunk) - There have been no other material changes in the market risk factors from those disclosed in the Company's Annual Report on Form 10-K[113](index=113&type=chunk) [Item 4. Controls and Procedures](index=19&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of December 28, 2024, with no material changes in internal control - The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of December 28, 2024[115](index=115&type=chunk) - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[116](index=116&type=chunk) Part II – Other Information [Item 5. Other Information](index=20&type=section&id=Item%205.%20Other%20Information) No officers or directors adopted or terminated Rule 10b5-1(c) trading arrangements during the three months ended December 28, 2024 - None of the Company's officers or directors adopted or terminated any Rule 10b5-1(c) trading arrangements during the three months ended December 28, 2024[117](index=117&type=chunk) [Item 6. Exhibits](index=20&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including certifications and financial information in iXBRL format - Exhibits include Rule 13a-14(a) Certifications and Certification Pursuant to 18 U.S.C. Section 1350[120](index=120&type=chunk) - Financial information from the Quarterly Report on Form 10-Q is furnished in iXBRL format[120](index=120&type=chunk) [Signatures](index=21&type=section&id=Signatures) The report was signed on February 6, 2025, by the Chief Executive Officer and Chief Financial Officer - The report was signed on February 6, 2025[122](index=122&type=chunk) - Signatories include James W. Lanning (Chief Executive Officer and President) and Patricia E. Jackson, CPA (Vice President-Finance and Chief Financial Officer)[122](index=122&type=chunk)

[First Quarter Fiscal 2025 Results](index=1&type=section&id=First%20Quarter%20Fiscal%202025%20Results) [Executive Summary and Operational Context](index=1&type=section&id=Executive%20Summary%20and%20Operational%20Context) Ingles Markets reported a significant decrease in net sales and net income for Q1 Fiscal 2025, largely impacted by Hurricane Helene, which caused store closures, lost revenue, and cleanup costs. Despite these challenges, the company remains committed to its communities and customers [Chairman's Statement](index=1&type=section&id=Chairman's%20Statement) - Chairman Robert P. Ingle II emphasized the company's dedication to offering value and high-quality products to customers, acknowledging the hard work of associates amidst recovery efforts in hurricane-impacted communities[2](index=2&type=chunk) [Impact of Hurricane Helene](index=1&type=section&id=Impact%20of%20Hurricane%20Helene) - Hurricane Helene severely impacted western North Carolina, leading to catastrophic flooding, power/communication/water outages, and major road closures, affecting the company's operations[2](index=2&type=chunk) Hurricane Helene Financial Impact | Metric | Impact | | :----- | :----- | | Stores closed due to damage | 4 (1 reopened, 3 expected to reopen in 2025) | | Estimated lost revenue (3-week period) | $55 to $65 million | | Cleanup and repair costs (Q1 FY25) | $5.4 million | [Consolidated Financial Performance](index=1&type=section&id=Consolidated%20Financial%20Performance) Ingles Markets experienced a significant decline in financial performance for Q1 Fiscal 2025 compared to the prior year, with net sales decreasing by 13.0% and net income falling by over 60%. This was primarily driven by lower sales and a reduced gross profit margin, despite a slight decrease in operating expenses and interest expense [Income Statement Highlights](index=1&type=section&id=Income%20Statement%20Highlights) Key Income Statement Metrics (Q1 FY25 vs Q1 FY24) | Metric | Q1 FY25 (Dec 28, 2024) | Q1 FY24 (Dec 30, 2023) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :--------- | | Net Sales | $1.29 billion | $1.48 billion | -13.0% | | Gross Profit | $301.1 million | $348.8 million | -13.7% | | Gross Profit Margin | 23.4% | 23.6% | -0.2 pp | | Operating & Admin Expenses | $280.7 million | $289.8 million | -3.1% | | Interest Expense | $5.0 million | $5.7 million | -12.2% | | Net Income | $16.6 million | $43.4 million | -61.8% | [Balance Sheet Highlights](index=1&type=section&id=Balance%20Sheet%20Highlights) Total Debt (Q1 FY25 vs Q1 FY24) | Metric | Q1 FY25 (Dec 28, 2024) ($ millions) | Q1 FY24 (Dec 30, 2023) ($ millions) | Change ($ millions) | | :-------- | :--------------------- | :--------------------- | :----- | | Total Debt | $529.4 million | $546.9 million | -$17.5 million | [Capital Expenditures and Liquidity](index=2&type=section&id=Capital%20Expenditures%20and%20Liquidity) Capital Expenditures (Q1 FY25 vs Q1 FY24) | Metric | Q1 FY25 (Dec 28, 2024) ($ millions) | Q1 FY24 (Dec 30, 2023) ($ millions) | Change ($ millions) | | :----------------- | :--------------------- | :--------------------- | :----- | | Capital Expenditures | $37.8 million | $63.2 million | -$25.4 million | - The Company has no outstanding borrowings under its **$150.0 million** line of credit and believes its financial resources are sufficient to meet future capital expenditures, debt service, and working capital requirements[7](index=7&type=chunk) [About Ingles Markets, Incorporated](index=3&type=section&id=About%20Ingles%20Markets,%20Incorporated) Ingles Markets, Inc. is a leading grocer operating 198 supermarkets across six southeastern states, headquartered in Asheville, NC. The company also manages neighborhood shopping centers and owns a fluid dairy facility, with three stores still closed from Hurricane Helene expected to reopen in 2025 - Ingles Markets, Inc. operates **198 supermarkets** in six southeastern states, with headquarters in Asheville, North Carolina[9](index=9&type=chunk) - The company also operates neighborhood shopping centers, often containing an Ingles supermarket, and owns a fluid dairy facility supplying both Ingles stores and unaffiliated customers[9](index=9&type=chunk) - As of December 28, 2024, **three of the four stores** damaged by Hurricane Helene remained closed but are anticipated to reopen during **2025**[9](index=9&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section advises readers that the press release contains forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Key risk factors include general economic conditions, inflation, labor shortages, competitive pressures, and the ability to manage technology and data security - The press release contains forward-looking statements regarding expected financial and operational results, identified by words like 'anticipate,' 'believe,' 'estimate,' 'expect,' and 'will'[10](index=10&type=chunk) - Actual results may differ materially due to factors such as business and economic conditions, inflation, labor and product shortages, competitive pressures, changes in gasoline prices, food safety concerns, and the ability to manage technology and data security[10](index=10&type=chunk) [Unaudited Financial Highlights](index=4&type=section&id=Unaudited%20Financial%20Highlights) This section presents the unaudited condensed consolidated financial statements for Ingles Markets, including the Statements of Income for the quarters ended December 28, 2024, and December 30, 2023, and the Balance Sheets as of December 28, 2024, and September 28, 2024, providing detailed financial figures [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20(Unaudited)) Condensed Consolidated Statements of Income (Unaudited) | Metric | Quarter Ended Dec 28, 2024 ($ thousands) | Quarter Ended Dec 30, 2023 ($ thousands) | | :---------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net sales | 1,288,115 | 1,481,062 | | Gross profit | 301,135 | 348,801 | | Operating and administrative expenses | 280,709 | 289,827 | | Gain (loss) from sale or disposal of assets | 3,146 | 653 | | Income from operations | 23,572 | 59,627 | | Other income, net | 3,297 | 3,607 | | Interest expense | 5,011 | 5,706 | | Pretax income | 21,858 | 57,528 | | Income tax expense | 5,270 | 14,134 | | Net income | 16,588 | 43,394 | | Basic earnings per common share – Class A | $0.89 | $2.33 | | Diluted earnings per common share – Class A | $0.87 | $2.28 | | Basic earnings per common share – Class B | $0.81 | $2.12 | | Diluted earnings per common share – Class B | $0.81 | $2.12 | | Depreciation and amortization expense | $30,939 | $28,774 | | Rent expense | $1,735 | $2,393 | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(Unaudited)) Condensed Consolidated Balance Sheets (Unaudited) | ASSETS | Dec 28, 2024 ($ thousands) | Sep 28, 2024 ($ thousands) | | :-------------------------- | :------------------------- | :------------------------- | | Cash and cash equivalents | 269,510 | 353,688 | | Receivables-net | 104,710 | 78,266 | | Inventories | 490,792 | 462,085 | | Other current assets | 25,013 | 31,509 | | Property and equipment-net | 1,526,528 | 1,526,708 | | Other assets | 76,719 | 75,627 | | TOTAL ASSETS | 2,493,272 | 2,527,883 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Current maturities of long-term debt | 17,521 | 17,521 | | Accounts payable, accrued expenses and current portion of other long-term liabilities | 257,013 | 303,101 | | Deferred income taxes | 64,056 | 63,767 | | Long-term debt | 511,852 | 515,102 | | Other long-term liabilities | 81,222 | 82,643 | | Total Liabilities | 931,664 | 982,134 | | Stockholders' equity | 1,561,608 | 1,545,749 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | 2,493,272 | 2,527,883 |

Group 1 - Ingles Markets, Incorporated was impacted by Hurricane Helene in late September, affecting its store and distribution network located in the Southeast region [1] - The company is aiming for a relatively quick recovery from the hurricane's effects [1] Group 2 - The investment philosophy focuses on identifying mispriced securities by understanding the drivers behind a company's financials, often revealed through DCF model valuation [2] - This methodology allows for a flexible approach to investing, considering all prospects of a stock to determine risk-to-reward [2]

Part I [Business](index=5&type=section&id=Item%201.%20Business) Ingles Markets, Incorporated operates 198 supermarkets primarily in the southeastern United States, offering diverse food and non-food products, with recent operations impacted by Hurricane Helene - Operates **198 supermarkets** across six southeastern states: North Carolina (75), Georgia (65), South Carolina (35), Tennessee (21), Virginia (1), and Alabama (1)[77](index=77&type=chunk) - Hurricane Helene in September 2024 resulted in significant financial losses, including a **$30.4 million impairment** for damaged inventory and a **$4.5 million loss** for property and equipment, temporarily closing four stores[26](index=26&type=chunk) Fiscal Year Revenue and Operating Income by Segment (in millions) | Category | FY 2024 Revenue | FY 2023 Revenue | FY 2022 Revenue | FY 2024 Operating Income | FY 2023 Operating Income | FY 2022 Operating Income | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Retail** | $5,421.8 | $5,663.9 | $5,475.7 | $123.0 | $263.2 | $353.0 | | **Other** | $217.8 | $228.9 | $203.1 | $24.2 | $29.1 | $23.9 | | **Total** | **$5,639.6** | **$5,892.8** | **$5,678.8** | **$147.2** | **$292.3** | **$376.9** | - The company's distribution facilities supply approximately **58%** of the goods sold in its supermarkets, with the remaining **42%** sourced from third parties[20](index=20&type=chunk) - As of September 28, 2024, Chairman Robert P. Ingle II beneficially owned approximately **72.5%** of the combined voting power of the company's stock[35](index=35&type=chunk) [Risk Factors](index=11&type=section&id=Item%201A.%20Risk%20Factors) The company faces multiple risks, including geographic concentration, intense competition, inflation, and governance issues due to controlling ownership - The company's operations are geographically concentrated in the Southeastern United States, making it vulnerable to regional events like Hurricane Helene, which severely impacted its North Carolina headquarters and distribution center[60](index=60&type=chunk) - The company faces risks from inflation in food, labor, and fuel prices, with the Consumer Price Index for all items at **2.4%** for the twelve months ended September 28, 2024, down from **3.7%** in the prior year[24](index=24&type=chunk)[2](index=2&type=chunk) - Chairman Robert P. Ingle II's beneficial ownership of approximately **72.5%** of the combined voting power gives him the ability to elect a majority of the board and control stockholder-approved actions[42](index=42&type=chunk) - The supermarket industry is highly competitive, with pressure from traditional and non-traditional competitors, including online retailers, some of whom have greater financial resources[23](index=23&type=chunk) [Unresolved Staff Comments](index=14&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - None[44](index=44&type=chunk) [Cybersecurity](index=14&type=section&id=Item%201C.%20Cybersecurity) The company manages cybersecurity risks using frameworks like NIST CSF and PCI-DSS, overseen by an internal team and the Audit Committee, with no material threats reported to date - The company utilizes the National Institute of Standards and Technology's Cybersecurity Framework (NIST CSF) and Payment Card Industry Data Security Standard (PCI-DSS) to guide its cyber risk management[45](index=45&type=chunk) - An Information Security Team, along with a 24/7 managed detection partner, oversees cybersecurity, with the Audit Committee of the Board of Directors providing oversight of information technology issues[45](index=45&type=chunk) - As of the report date, the company has not encountered cybersecurity threats that have materially affected, or are reasonably likely to materially affect, its business strategy, results of operations, or financial position[45](index=45&type=chunk) [Properties](index=15&type=section&id=Item%202.%20Properties) The company owns a significant portion of its real estate, including 175 supermarkets, 101 shopping centers, and key operational facilities, while leasing 23 supermarket locations - The company owns **175** of its supermarkets, either as free-standing locations or as anchor tenants in company-owned shopping centers, and also owns **29** undeveloped sites[47](index=47&type=chunk) - Key owned facilities include a **1.65 million square foot** headquarters and distribution center near Asheville, NC, and a **140,000 square foot** milk processing plant[17](index=17&type=chunk)[20](index=20&type=chunk) - The company operates supermarkets at **23** locations leased from unaffiliated third parties, with most leases requiring the company to pay property taxes, utilities, and other expenses[17](index=17&type=chunk) [Legal Proceedings](index=15&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal proceedings, but management believes the ultimate liability will not materially affect its financial position or operations - In the opinion of management, the ultimate liability from all pending legal proceedings and claims would not materially affect the Company's business, financial condition, results of operations or cash flows[17](index=17&type=chunk) [Mine Safety Disclosures](index=16&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[49](index=49&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=16&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's Class A Common Stock trades on NASDAQ, while Class B is not public, with a history of quarterly dividends and no recent share repurchases - The Company's Class A Common Stock is listed on The NASDAQ Global Select Market (IMKTA), with no public market for the Class B Common Stock[51](index=51&type=chunk) - In fiscal years 2024 and 2023, the company paid annual dividends of **$0.66 per share** of Class A Common Stock and **$0.60 per share** of Class B Common Stock[52](index=52&type=chunk) 5-Year Indexed Returns of Initial $100 Investment | Company/Index | 2020 | 2021 | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | Ingles Markets, Inc. | $95.49 | $173.74 | $218.71 | $203.00 | $202.06 | | S&P 500 Index | $115.15 | $149.70 | $126.54 | $153.89 | $209.84 | | Peer Group | $128.12 | $151.81 | $149.57 | $167.31 | $215.67 | [Reserved](index=18&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a significant decline in fiscal 2024 net income to $105.5 million, primarily due to Hurricane Helene's impact, while maintaining strong liquidity and planning future capital expenditures [Results of Operations](index=19&type=section&id=7.1%20Results%20of%20Operations) Fiscal 2024 net income significantly decreased to $105.5 million due to lower sales and the substantial financial impact of Hurricane Helene, including inventory and asset write-offs Fiscal Year 2024 vs. 2023 Key Financials | Metric | Fiscal Year 2024 (52 weeks) | Fiscal Year 2023 (53 weeks) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $5.64 billion | $5.89 billion | -4.2% | | Gross Profit | $1.30 billion | $1.40 billion | -7.5% | | Operating Income | $147.1 million | $292.3 million | -49.7% | | Net Income | $105.5 million | $210.8 million | -50.0% | | Diluted EPS (Class A) | $5.56 | $11.10 | -50.0% | - Hurricane Helene caused an estimated **$14.0 million** in lost sales, a **$30.4 million** inventory loss, and a **$4.5 million** asset impairment write-off in fiscal 2024[99](index=99&type=chunk)[100](index=100&type=chunk) - On a 52-week comparative basis, retail grocery comparable store sales (excluding fuel) decreased **1.7%** in fiscal 2024, with transactions down **0.3%** and average transaction size down **1.4%**[99](index=99&type=chunk) - Operating and administrative expenses increased by **$46.4 million (4.2%)**, primarily due to higher costs for insurance (**$16.9 million**), salaries (**$13.0 million**), and taxes/licenses (**$5.4 million**)[100](index=100&type=chunk)[88](index=88&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=7.2%20Liquidity%20and%20Capital%20Resources) The company maintained strong liquidity with $262.5 million cash from operations, increased capital expenditures to $210.9 million, and plans $120-160 million for fiscal 2025, with an undrawn $150 million credit line - Generated **$262.5 million** of cash from operations in fiscal 2024, compared to **$266.4 million** in fiscal 2023[104](index=104&type=chunk) - Capital expenditures totaled **$210.9 million** in fiscal 2024, an increase from **$173.6 million** in 2023, with plans to invest approximately **$120 million to $160 million** in fiscal 2025[120](index=120&type=chunk) - As of September 28, 2024, the company had no borrowings outstanding under its **$150.0 million** line of credit and was in compliance with all debt covenants[105](index=105&type=chunk) - The company has paid regular quarterly cash dividends since 1993, totaling **$0.66 per Class A share** annually in fiscal 2024[106](index=106&type=chunk) [Quantitative and Qualitative Disclosures About Market Risks](index=24&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risks) The company manages interest rate risk through a mix of fixed and variable-rate debt, utilizing interest rate swaps to hedge a portion of its variable-rate obligations - The company is exposed to interest rate risk from its borrowing activities, with **$350.0 million** Senior Notes at a fixed rate and other debt, including Recovery Zone Bonds and bank loans, at variable rates[109](index=109&type=chunk) Debt Obligations by Maturity at Sep 28, 2024 (in thousands) | Debt Type | 2025 | 2026 | 2027 | 2028 | 2029 | Thereafter | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Variable Rate Debt | $13,750 | $13,750 | $13,750 | $8,237 | $7,750 | $80,083 | $137,320 | | Recovery Zone Bonds | $4,530 | $4,530 | $4,530 | $4,530 | $4,530 | $27,260 | $49,910 | | Fixed Rate Senior Notes | $0 | $0 | $0 | $0 | $0 | $350,000 | $350,000 | - The company uses two interest rate swap agreements to effectively fix the interest rates on **$18.5 million** and **$116.9 million** of its variable-rate debt[110](index=110&type=chunk)[105](index=105&type=chunk) [Financial Statements and Supplementary Data](index=25&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section includes the company's audited consolidated financial statements, notes, and the independent auditor's unqualified report on both financial statements and internal controls [Report of Independent Registered Public Accounting Firm](index=30&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Deloitte & Touche LLP issued an unqualified opinion on the financial statements and internal controls, highlighting vendor allowances and Hurricane Helene inventory impairment as critical audit matters - The auditor issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting[152](index=152&type=chunk)[210](index=210&type=chunk) - Critical Audit Matters identified were: 1) Vendor Allowances, due to the number and diversity of agreements, and 2) Inventory impairment loss from Hurricane Helene, due to the number of locations impacted[155](index=155&type=chunk)[208](index=208&type=chunk) [Consolidated Financial Statements](index=33&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements show total assets of $2.53 billion, increased stockholders' equity, and a net income of $105.5 million for fiscal 2024, with cash and cash equivalents rising by $25.1 million Consolidated Balance Sheet Data (in thousands) | Account | Sep 28, 2024 | Sep 30, 2023 | | :--- | :--- | :--- | | Total Current Assets | $925,548 | $952,556 | | Total Assets | $2,527,883 | $2,473,846 | | Total Current Liabilities | $320,622 | $330,533 | | Total Liabilities | $982,134 | $1,014,874 | | Total Stockholders' Equity | $1,545,749 | $1,458,972 | Consolidated Statement of Income Data (in thousands) | Account | FY 2024 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | | Net Sales | $5,639,609 | $5,892,782 | $5,678,835 | | Gross Profit | $1,299,835 | $1,404,915 | $1,415,768 | | Income from Operations | $147,144 | $292,304 | $376,933 | | Net Income | $105,541 | $210,812 | $272,759 | Consolidated Statement of Cash Flows Data (in thousands) | Account | FY 2024 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $262,517 | $266,411 | $339,498 | | Net Cash from Investing Activities | ($206,185) | ($170,096) | ($111,990) | | Net Cash from Financing Activities | ($31,184) | ($34,974) | ($30,623) | | Net Increase in Cash | $25,148 | $61,341 | $196,885 | [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=25&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting principles or financial disclosure - None[111](index=111&type=chunk) [Controls and Procedures](index=25&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of September 28, 2024, with no material changes during the last quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 28, 2024[127](index=127&type=chunk) - Management concluded that the company maintained effective internal control over financial reporting as of September 28, 2024, based on the COSO framework[163](index=163&type=chunk) - There were no changes in internal control over financial reporting during the fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[164](index=164&type=chunk) [Other Information](index=26&type=section&id=Item%209B.%20Other%20Information) No officers or directors adopted or terminated Rule 10b5-1 trading plans or other trading arrangements during the fourth quarter - No officers or directors adopted or terminated any Rule 10b5-1 trading arrangement during the three-month period ended September 28, 2024[165](index=165&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=26&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[165](index=165&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=26&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the company's definitive Proxy Statement for the 2025 annual stockholders' meeting - Information required by this item is incorporated by reference from the company's definitive Proxy Statement for its 2025 annual meeting of stockholders[138](index=138&type=chunk) [Executive Compensation](index=27&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's definitive Proxy Statement - Information required by this item is incorporated by reference from the company's definitive Proxy Statement[141](index=141&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=27&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership is incorporated by reference from the company's definitive Proxy Statement - Information required by this item is incorporated by reference from the company's definitive Proxy Statement[141](index=141&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=27&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive Proxy Statement - Information required by this item is incorporated by reference from the company's definitive Proxy Statement[141](index=141&type=chunk)[168](index=168&type=chunk) [Principal Accountant Fees and Services](index=27&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the company's definitive Proxy Statement - Information required by this item is incorporated by reference from the company's definitive Proxy Statement[141](index=141&type=chunk)[168](index=168&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=27&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all documents filed with the Form 10-K, including financial statements, various agreements, and required certifications - Lists all financial statements, schedules, and exhibits filed with the Form 10-K, including certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act[169](index=169&type=chunk)[131](index=131&type=chunk)[148](index=148&type=chunk) [Form 10-K Summary](index=29&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has not provided a summary under this optional item - None[151](index=151&type=chunk)

Financial Performance - Ingles Markets, Incorporated announced preliminary financial information for the fiscal quarter and year ended September 28, 2024[4]. - The impairment charge will affect the company's results of operation for the year ended September 28, 2024[5]. - The press release containing financial results was issued on October 29, 2024[4]. Impairment and Insurance - The company expects to record an impairment charge between $35.0 million to $55.0 million due to Hurricane Helene's impact, with an estimated insurance reimbursement of $10.0 million to $15.0 million[5]. - The company will file an amendment to the Current Report after determining the final estimate of the impairment charge[5]. Future Risks and Uncertainties - The company highlighted uncertainties in future financial impacts due to the complexity of the situation and preliminary nature of available information[5]. - Forward-looking statements indicate potential risks including inflation, labor shortages, and natural disasters affecting operational results[6]. - The company does not undertake an obligation to update forward-looking information except as required by law[6]. Competitive Environment - The company is subject to various competitive factors, including online-based procurement pressures[6]. Corporate Governance - The report was signed by Patricia E. Jackson, Chief Financial Officer, on October 29, 2024[10].

Core Viewpoint - Ingles Markets has experienced revenue declines in the first half of FY2024, attributed to slowing food inflation and weaker gas prices, which have impacted overall industry growth [7][16]. Despite this, the stock remains undervalued, with a fair value estimate significantly above its current price [5][17]. Financial Performance - Revenue declined by -0.8% in Q1 and -1.0% in Q2 of FY2024, marking a shift from the company's long-term modest growth trend [7][16]. - The company's operating margin has decreased to 4.0%, down from a high of 6.8% in FY2021, but remains above the pre-pandemic average of 3.3% [11][17]. Valuation - The fair value estimate for Ingles Markets is $117.99, representing a 73% upside from the current stock price, with a trailing P/E of 7.4, which is unusually low for a grocery chain [5][17]. - The discounted cash flow (DCF) model indicates a weighted average cost of capital (WACC) of 6.75%, down from 7.25% previously, reflecting adjustments in profitability and growth estimates [9][12]. Asset Value - Ingles Markets owns significant real estate assets, valued at $1,128.7 million in buildings and $345.6 million in land, which could provide substantial shareholder value through potential sale-and-leaseback transactions [14]. - The company's market capitalization is around $1.3 billion, suggesting that the realizable value of its assets could cover a significant portion of this market cap [14]. Market Context - The broader market has seen a return of 15% since the last rating of Ingles Markets, while the stock has lost 22% of its value, indicating a disconnect between market performance and the company's fundamentals [3]. - The slowdown in food inflation and gas prices has contributed to the revenue weakness, but this is viewed as a temporary industry-wide issue rather than a specific weakness of Ingles Markets [7][11].

[Part I – Financial Information](index=3&type=section&id=Part%20I%20%E2%80%93%20Financial%20Information) [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Ingles Markets' unaudited condensed consolidated financial statements, including balance sheets, income statements, equity changes, cash flows, and explanatory notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | ASSETS | March 30, 2024 (in dollars) | September 30, 2023 (in dollars) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $302,017,848 | $328,539,922 | | Total Current Assets | $917,121,987 | $952,556,345 | | Property and Equipment - Net | $1,480,037,502 | $1,431,872,289 | | Total Assets | $2,486,307,693 | $2,473,845,733 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total Current Liabilities | $286,961,077 | $330,533,149 | | Total Liabilities | $960,865,224 | $1,014,873,593 | | Total Stockholders' Equity | $1,525,442,469 | $1,458,972,140 | - Total Assets increased by **$12.46 million** from September 30, 2023, to March 30, 2024, reaching **$2.486 billion**[10](index=10&type=chunk) - Total Liabilities decreased by **$54.01 million**, while Total Stockholders' Equity increased by **$66.47 million** over the same period[10](index=10&type=chunk) [Condensed Consolidated Statements of Income and Comprehensive Income (Three Months)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income%20for%20the%20Three%20Months%20Ended%20March%2030%2C%202024%20and%20March%2025%2C%202023) | Metric | Three Months Ended March 30, 2024 (in dollars) | Three Months Ended March 25, 2023 (in dollars) | Change (YoY) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Net sales | $1,367,479,701 | $1,380,604,140 | -0.95% | | Gross profit | $321,884,960 | $325,939,961 | -1.24% | | Income from operations | $44,809,057 | $57,647,015 | -22.30% | | Net income | $31,898,626 | $40,539,805 | -21.31% | | Basic EPS (Class A) | $1.72 | $2.18 | -21.01% | | Diluted EPS (Class A) | $1.68 | $2.13 | -21.13% | - Net sales decreased by **0.95%** year-over-year for the three months ended March 30, 2024[12](index=12&type=chunk) - Net income saw a significant decline of **21.31%** compared to the prior year's quarter[12](index=12&type=chunk) [Condensed Consolidated Statements of Income and Comprehensive Income (Six Months)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income%20for%20the%20Six%20Months%20Ended%20March%2030%2C%202024%20and%20March%2025%2C%202023) | Metric | Six Months Ended March 30, 2024 (in dollars) | Six Months Ended March 25, 2023 (in dollars) | Change (YoY) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Net sales | $2,848,541,531 | $2,873,918,247 | -0.88% | | Gross profit | $670,686,039 | $697,094,851 | -3.79% | | Income from operations | $104,436,466 | $153,402,731 | -31.92% | | Net income | $75,292,227 | $109,911,286 | -31.49% | | Basic EPS (Class A) | $4.05 | $5.92 | -31.59% | | Diluted EPS (Class A) | $3.96 | $5.79 | -31.59% | - Net sales decreased by **0.88%** for the six months ended March 30, 2024, compared to the same period last year[14](index=14&type=chunk) - Net income for the six-month period declined by **31.49%** year-over-year[14](index=14&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity%20for%20the%20Three%20Months%20and%20Six%20Months%20Ended%20March%2030%2C%202024%20and%20March%2025%2C%202023) | Equity Component | Balance, September 30, 2023 (in dollars) | Net Income (6 months, in dollars) | Other Comprehensive Income (Loss), net of tax (6 months, in dollars) | Cash Dividends (6 months, in dollars) | Common Stock Conversions (6 months, in dollars) | Balance, March 30, 2024 (in dollars) | | :-------------------------------- | :-------------------------- | :-------------------- | :------------------------------------------------------- | :------------------------ | :---------------------------------- | :-------------------------- | | Class A Common Stock (Amount) | $724,854 | - | - | - | $1,981 | $726,835 | | Class B Common Stock (Amount) | $224,865 | - | - | - | -$1,981 | $222,884 | | Accumulated Other Comprehensive Income | $13,233,631 | - | -$2,688,085 | - | - | $10,545,546 | | Retained Earnings | $1,444,788,790 | $75,292,227 | - | -$6,133,813 | - | $1,513,947,204 | | Total Stockholders' Equity | $1,458,972,140 | $75,292,227 | -$2,688,085 | -$6,133,813 | - | $1,525,442,469 | - Total Stockholders' Equity increased from **$1.459 billion** at September 30, 2023, to **$1.525 billion** at March 30, 2024, driven by net income partially offset by other comprehensive loss and cash dividends[16](index=16&type=chunk) - Cash dividends paid for the six months ended March 30, 2024, totaled **$6.13 million**[16](index=16&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Six%20Months%20Ended%20March%2030%2C%202024%20and%20March%2025%2C%202023) | Cash Flow Activity | Six Months Ended March 30, 2024 (in dollars) | Six Months Ended March 25, 2023 (in dollars) | Change (YoY) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Net Cash Provided by Operating Activities | $85,973,987 | $94,413,616 | -9.04% | | Net Cash Used by Investing Activities | ($94,644,183) | ($89,585,496) | +5.65% | | Net Cash Used by Financing Activities | ($17,851,878) | ($21,722,961) | -17.82% | | Net Decrease in Cash and Cash Equivalents | ($26,522,074) | ($16,894,841) | +56.98% | | Cash and Cash Equivalents at End of Period | $302,017,848 | $250,303,676 | +20.66% | - Net cash provided by operating activities decreased by **9.04%** to **$85.97 million** for the six months ended March 30, 2024[18](index=18&type=chunk) - Cash used in investing activities increased by **5.65%** to **$94.64 million**, primarily due to higher capital expenditures[18](index=18&type=chunk) - The company experienced a net decrease in cash and cash equivalents of **$26.52 million**, a **56.98%** larger decrease compared to the prior year period[18](index=18&type=chunk) [Notes to Condensed Consolidated Unaudited Interim Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Unaudited%20Interim%20Financial%20Statements) [A. Basis of Preparation](index=8&type=section&id=A.%20BASIS%20OF%20PREPARATION) - The interim financial statements are unaudited and include all normal recurring adjustments necessary for fair presentation[20](index=20&type=chunk) - Certain information and footnote disclosures have been condensed or omitted per SEC Form 10-Q rules[20](index=20&type=chunk) - Results for the interim periods are not necessarily indicative of the full fiscal year[21](index=21&type=chunk) [B. New Accounting Pronouncements](index=8&type=section&id=B.%20NEW%20ACCOUNTING%20PRONOUNCEMENTS) - ASU 2020-04 (Reference Rate Reform) provided optional guidance for LIBOR transition; the Company adopted SOFR without material impact[22](index=22&type=chunk) - ASU 2023-09 (Income Taxes) requires greater disaggregation of income tax disclosures, effective for fiscal years beginning after December 15, 2024; the Company is evaluating its impact[23](index=23&type=chunk) - ASU 2023-07 (Segment Reporting) enhances segment expense disclosures and requires quarterly reporting of previous annual disclosures, effective retrospectively for fiscal years beginning after December 15, 2023; the Company is evaluating its impact[24](index=24&type=chunk) [C. Short Term Investments](index=8&type=section&id=C.%20SHORT%20TERM%20INVESTMENTS) - The Company purchases financial products like money market funds, bonds, and mutual funds, accounted for as short-term investments[25](index=25&type=chunk) - Carrying values of short-term investments approximate fair value due to their liquidity[25](index=25&type=chunk) [D. Allowance for Doubtful Accounts](index=8&type=section&id=D.%20ALLOWANCE%20FOR%20DOUBTFUL%20ACCOUNTS) | Date | Allowance for Doubtful Accounts (in dollars) | | :---------------- | :------------------------------ | | March 30, 2024 | $294,085 | | September 30, 2023 | $143,753 | - The allowance for doubtful accounts increased by **$150,332** from September 30, 2023, to March 30, 2024[26](index=26&type=chunk) [E. Income Taxes](index=8&type=section&id=E.%20INCOME%20TAXES) - The Company's effective tax rate differs from the federal statutory rate primarily due to state income taxes and tax credits[27](index=27&type=chunk) - Unrecognized tax benefits and related interest/penalties are insignificant and not expected to change materially within the next twelve months[28](index=28&type=chunk) [F. Accrued Expenses and Current Portion of Other Long-Term Liabilities](index=9&type=section&id=F.%20ACCRUED%20EXPENSES%20AND%20CURRENT%20PORTION%20OF%20OTHER%20LONG-TERM%20LIABILITIES) | Category | March 30, 2024 (in dollars) | September 30, 2023 (in dollars) | | :------------------------------------------ | :----------------------------- | :------------------------------- | | Property, payroll and other taxes payable | $16,833,389 | $25,203,091 | | Salaries, wages and bonuses payable | $38,402,631 | $50,836,143 | | Self-insurance liabilities | $15,064,285 | $13,974,358 | | Interest payable | $5,077,451 | $5,111,666 | | Other | $5,034,430 | $5,610,526 | | **Total** | **$80,412,186** | **$100,735,784** | - Total accrued expenses and current portion of other long-term liabilities decreased by **$20.32 million** from September 30, 2023, to March 30, 2024[29](index=29&type=chunk) - Self-insurance reserves totaled **$34.6 million** at March 30, 2024, with **$15.1 million** current and **$19.5 million** long-term, including **$4.6 million** in expected recoveries[29](index=29&type=chunk) - Employee insurance expense (net of contributions) increased to **$9.4 million** for the three months ended March 30, 2024, from **$8.1 million** in the prior year, and to **$22.4 million** for the six months, from **$19.0 million**[30](index=30&type=chunk) [G. Long-Term Debt](index=9&type=section&id=G.%20LONG-TERM%20DEBT) - The Company's debt agreements and interest rate swaps transitioned from LIBOR to SOFR without material financial impact[32](index=32&type=chunk) - Outstanding long-term debt includes **$350.0 million** in 4.00% senior notes due 2031, **$49.9 million** in facility bonds due 2036, and SOFR-based amortizing floating rate loans[33](index=33&type=chunk)[36](index=36&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk) - The Company has a **$150.0 million** line of credit maturing in June 2026, with no outstanding borrowings at March 30, 2024[33](index=33&type=chunk) - Interest rate swap agreements hedge floating rate debt, with changes in fair value recorded in other comprehensive income[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) - The Company was in compliance with all financial covenants at March 30, 2024, and had **$498.5 million** in excess net worth under covenants[41](index=41&type=chunk)[43](index=43&type=chunk) [H. Dividends](index=11&type=section&id=H.%20DIVIDENDS) | Stock Class | Dividend per Share (Oct 2023, in dollars) | Dividend per Share (Jan 2024, in dollars) | | :---------------- | :---------------------------------------- | :---------------------------------------- | | Class A Common Stock | $0.165 | $0.165 | | Class B Common Stock | $0.15 | $0.15 | - The Company paid consistent quarterly cash dividends of **$0.165 per share** for Class A Common Stock and **$0.15 per share** for Class B Common Stock in October 2023 and January 2024[44](index=44&type=chunk) [I. Earnings Per Common Share](index=11&type=section&id=I.%20EARNINGS%20PER%20COMMON%20SHARE) - The Company calculates earnings per share using the two-class method, reflecting dividend rights for Class A (110% of Class B) and Class B Common Stock[46](index=46&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk) | EPS Type | Class | Three Months Ended March 30, 2024 (in dollars) | Three Months Ended March 25, 2023 (in dollars) | Six Months Ended March 30, 2024 (in dollars) | Six Months Ended March 25, 2023 (in dollars) | | :---------------- | :------ | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Basic EPS | Class A | $1.72 | $2.18 | $4.05 | $5.92 | | Diluted EPS | Class A | $1.68 | $2.13 | $3.96 | $5.79 | | Basic EPS | Class B | $1.56 | $1.98 | $3.68 | $5.38 | | Diluted EPS | Class B | $1.56 | $1.98 | $3.68 | $5.38 | - Diluted EPS for Class A Common Stock decreased by **21.13%** for the three-month period and **31.59%** for the six-month period year-over-year[49](index=49&type=chunk) [J. Leases](index=12&type=section&id=J.%20LEASES) - Operating lease rent expense was **$2.7 million** for the three months and **$5.1 million** for the six months ended March 30, 2024[51](index=51&type=chunk) - Finance lease cost was **$420.0 thousand** for the six months ended March 30, 2024, including amortization and interest[52](index=52&type=chunk) | Fiscal Year | Operating Leases (Future Maturities, in dollars) | Finance Leases (Future Maturities, in dollars) | | :---------------- | :----------------------------------- | :--------------------------------- | | Remainder of 2024 | $4,161,938 | $420,000 | | 2025 | $8,238,176 | $840,000 | | 2026 | $7,076,845 | $840,000 | | 2027 | $6,317,262 | $840,000 | | 2028 | $4,775,296 | $840,000 | | Thereafter | $20,409,830 | $101,500 | | **Total lease payments (in dollars)** | **$50,979,347** | **$3,881,500** | | Less amount representing interest (in dollars) | $11,231,895 | $499,028 | | **Present value of lease liabilities (in dollars)** | **$39,747,452** | **$3,382,472** | - The Company owns and operates 96 shopping centers, leasing portions to others, with rental income included in net sales[53](index=53&type=chunk)[54](index=54&type=chunk) | Rental Income Category | Three Months Ended March 30, 2024 (in dollars) | Six Months Ended March 30, 2024 (in dollars) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Base rentals | $6,821,138 | $13,702,796 | | Variable rentals | $50,956 | $101,912 | | **Total Rents Earned** | **$6,872,094** | **$13,804,708** | | Depreciation on owned properties leased to others | ($2,037,120) | ($4,033,370) | | Other shopping center expenses | ($1,203,110) | ($1,992,714) | | **Total (Net)** | **$3,631,864** | **$7,778,624** | | Fiscal Year | Future Minimum Operating Lease Receipts (in dollars) | | :---------------- | :------------------------------------ | | Remainder of 2024 | $10,041,564 | | 2025 | $18,463,750 | | 2026 | $14,827,515 | | 2027 | $11,596,313 | | 2028 | $8,869,669 | | Thereafter | $31,408,311 | | **Total minimum future rental income** | **$95,207,122** | [K. Segment Information](index=13&type=section&id=K.%20SEGMENT%20INFORMATION) - The Company operates one primary business segment: retail grocery sales, with 'Other' including fluid dairy and shopping center rentals[57](index=57&type=chunk) | Segment | Three Months Ended March 30, 2024 (Revenues, in thousands of dollars) | Three Months Ended March 25, 2023 (Revenues, in thousands of dollars) | Six Months Ended March 30, 2024 (Revenues, in thousands of dollars) | Six Months Ended March 25, 2023 (Revenues, in thousands of dollars) | | :-------------------------------- | :------------------------------------------- | :------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Grocery | $490,490 | $492,553 | $1,012,295 | $1,033,411 | | Non-foods | $305,921 | $308,684 | $664,018 | $636,039 | | Perishables | $349,135 | $348,204 | $717,119 | $722,392 | | Fuel | $169,742 | $175,551 | $347,629 | $368,023 | | **Total Retail** | **$1,315,288** | **$1,324,992** | **$2,741,061** | **$2,759,865** | | Other | $52,192 | $55,612 | $107,481 | $114,053 | | **Total revenues from unaffiliated customers** | **$1,367,480** | **$1,380,604** | **$2,848,542** | **$2,873,918** | | **Income from operations:** | | | | | | Retail | $38,732 | $50,786 | $92,123 | $138,701 | | Other | $6,076 | $6,861 | $12,313 | $14,702 | | **Total income from operations** | **$44,809** | **$57,647** | **$104,436** | **$153,403** | | Segment | March 30, 2024 (Assets, in thousands of dollars) | September 30, 2023 (Assets, in thousands of dollars) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Retail | $2,142,529 | $2,159,883 | | Other | $345,442 | $317,479 | | Elimination of intercompany receivable | ($1,664) | ($3,516) | | **Total assets** | **$2,486,308** | **$2,473,846** | [L. Fair Values of Financial Instruments](index=13&type=section&id=L.%20FAIR%20VALUES%20OF%20FINANCIAL%20INSTRUMENTS) - Fair values of cash, receivables, and payables approximate carrying amounts due to short-term maturity[59](index=59&type=chunk) - Fair values of debt and interest rate swaps are estimated using valuation techniques based on observable and unobservable inputs, classified into Level 1, 2, or 3 hierarchy[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk) | Financial Instrument | Carrying Amount (March 30, 2024, in thousands of dollars) | Fair Value (March 30, 2024, in thousands of dollars) | Fair Value Measurements | | :-------------------------------- | :-------------------------------------------------------- | :------------------------------------------- | :---------------------- | | Senior Notes due 2031 | $350,000 | $305,375 | Level 2 | | Facility Bonds due 2036 | $49,910 | $49,910 | Level 2 | | Secured notes payable and other | $139,208 | $139,208 | Level 2 | | Interest rate swap derivative contracts asset | $13,958 | $13,958 | Level 2 | | Non-qualified retirement plan assets | $24,780 | $24,780 | Level 2 | [M. Commitments and Contingencies](index=14&type=section&id=M.%20COMMITMENTS%20AND%20CONTINGENCIES) - Management believes that the ultimate liability from pending legal proceedings and claims will not materially affect the Company's financial position, results of operations, or cash flows[63](index=63&type=chunk) [N. Related Party Transactions](index=14&type=section&id=N.%20RELATED%20PARTY%20TRANSACTIONS) - The Company made **$500,000** in short-term non-interest bearing loans to its Investment/Profit Sharing Plan during the six months ended March 30, 2024[64](index=64&type=chunk) - In January 2024, the Company swapped adjoining properties with a related limited liability company, receiving an additional **$2.3 million** based on independent appraisals and Audit Committee approval[65](index=65&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=14&type=section&id=Item%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section analyzes Ingles Markets' financial condition, operations, liquidity, and capital resources, including critical estimates [Overview](index=14&type=section&id=Overview) - Ingles operates 198 supermarkets across six Southeastern states, offering a wide range of food and non-food products, including private label items, organic products, bakery, and prepared foods[66](index=66&type=chunk) [Critical Accounting Estimates](index=14&type=section&id=Critical%20Accounting%20Estimates) - Critical accounting estimates involve significant management judgment and are based on historical experience and future uncertainties, with actual results potentially differing materially[67](index=67&type=chunk)[68](index=68&type=chunk) - No material changes to critical accounting policies and estimates were reported for the six months ended March 30, 2024[69](index=69&type=chunk) [Self-Insurance](index=15&type=section&id=Self-Insurance) - The Company is self-insured for workers' compensation, general liability, and group medical/dental benefits, with excess liability coverage to limit exposure[70](index=70&type=chunk) - Self-insurance liabilities are based on claims filed and estimates of incurred but not reported claims, totaling **$34.6 million** at March 30, 2024, including **$4.6 million** in expected recoveries[70](index=70&type=chunk) [Asset Impairments](index=15&type=section&id=Asset%20Impairments) - The Company tests long-lived assets for impairment using undiscounted cash flows for assets held for use and recognizes impairment based on excess book value over expected recovery value for assets held for sale[71](index=71&type=chunk) - No asset impairments occurred during the six-month period ended March 30, 2024[71](index=71&type=chunk) [Vendor Allowances](index=15&type=section&id=Vendor%20Allowances) - Vendor allowances, primarily volume-based incentives and promotional discounts, are generally recorded as a reduction of inventory cost or merchandise costs when related inventory is sold[72](index=72&type=chunk) | Allowance Type | Period | Amount (Millions) | | :-------------------------------- | :-------------------------------- | :---------------- | | Reduction of merchandise costs | Q2 FY24 | $35.8 | | Reduction of merchandise costs | Q2 FY23 | $29.8 | | Reduction of merchandise costs | H1 FY24 | $72.6 | | Reduction of merchandise costs | H1 FY23 | $64.6 | | Reduction of advertising expense | Q2 FY24 | $2.3 | | Reduction of advertising expense | Q2 FY23 | $1.9 | | Reduction of advertising expense | H1 FY24 | $4.2 | | Reduction of advertising expense | H1 FY23 | $3.9 | [Results of Operations](index=16&type=section&id=Results%20of%20Operations) - The Company's fiscal year ends on the last Saturday in September, with the reported periods covering 13 and 26 weeks respectively[75](index=75&type=chunk) - Comparable store sales include sales from retail stores in operation for five full fiscal quarters, including replacement stores, major remodels, and stores with added fuel stations[75](index=75&type=chunk) | Metric (% of Net Sales) | Three Months Ended March 30, 2024 | Three Months Ended March 25, 2023 | Six Months Ended March 30, 2024 | Six Months Ended March 25, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net sales | 100.0 % | 100.0 % | 100.0 % | 100.0 % | | Gross profit | 23.5 % | 23.6 % | 23.5 % | 24.3 % | | Operating and administrative expenses | 20.8 % | 19.4 % | 20.1 % | 19.0 % | | Income from operations | 3.3 % | 4.2 % | 3.7 % | 5.3 % | | Net income | 2.3 % | 2.9 % | 2.6 % | 3.8 % | [Three Months Ended March 30, 2024 Compared to the Three Months Ended March 25, 2023](index=16&type=section&id=Three%20Months%20Ended%20March%2030%2C%202024%20Compared%20to%20the%20Three%20Months%20Ended%20March%2025%2C%202023) - Net income for Q2 FY24 decreased to **$31.9 million** from **$40.5 million** in Q2 FY23, primarily due to increased expenses[78](index=78&type=chunk) - Net sales decreased by **0.95%** to **$1.37 billion**, with total grocery comparable store sales (excluding fuel) decreasing by **0.2%**[79](index=79&type=chunk) | Sales Category | Three Months Ended March 30, 2024 (in thousands of dollars) | Three Months Ended March 25, 2023 (in thousands of dollars) | | :---------------- | :-------------------------------------------------------- | :-------------------------------------------------------- | | Grocery | $490,490 | $492,553 | | Non-foods | $305,921 | $308,684 | | Perishables | $349,135 | $348,204 | | Fuel | $169,742 | $175,551 | | **Total retail grocery** | **$1,315,288** | **$1,324,992** | - Gross profit decreased by **$4.1 million (1.2%)** to **$321.9 million**, with gross profit as a percentage of sales declining from **23.6% to 23.5%** due to inflation and raw material shortages[80](index=80&type=chunk) - Operating and administrative expenses increased by **$15.9 million (5.9%)** to **$284.8 million**, rising to **20.8% of sales** from **19.5%**, driven by higher salaries and wages, insurance, and repairs/maintenance costs[81](index=81&type=chunk)[82](index=82&type=chunk) - Gain from sale or disposal of assets significantly increased to **$7.7 million** from **$0.6 million**, primarily from an adjacent property exchange[83](index=83&type=chunk) - Interest expense increased to **$5.6 million** from **$5.3 million** due to higher interest rates on variable rate indebtedness[84](index=84&type=chunk) [Six Months Ended March 30, 2024 Compared to the Six Months Ended March 25, 2023](index=17&type=section&id=Six%20Months%20Ended%20March%2030%2C%202024%20Compared%20to%20the%20Six%20Months%20Ended%20March%2025%2C%202023) - Net income for the first half of FY24 decreased to **$75.3 million** from **$109.9 million** in H1 FY23, primarily due to increased expenses[87](index=87&type=chunk) - Net sales decreased by **0.88%** to **$2.85 billion**, while total grocery comparable store sales (excluding fuel) increased by **0.43%**[88](index=88&type=chunk) | Sales Category | Six Months Ended March 30, 2024 (in thousands of dollars) | Six Months Ended March 25, 2023 (in thousands of dollars) | | :---------------- | :------------------------------------------------------ | :------------------------------------------------------ | | Grocery | $1,012,295 | $1,033,411 | | Non-foods | $664,019 | $636,039 | | Perishables | $717,119 | $722,392 | | Fuel | $347,629 | $368,023 | | **Total retail grocery** | **$2,741,061** | **$2,759,865** | - Gross profit decreased by **$26.4 million (3.79%)** to **$670.7 million**, with gross profit as a percentage of sales declining from **24.3% to 23.5%**[91](index=91&type=chunk) - Operating and administrative expenses increased by **$29.5 million (5.4%)** to **$574.6 million**, rising to **20.2% of sales** from **19.0%**, driven by higher salaries and wages, insurance, and repairs/maintenance costs[92](index=92&type=chunk)[93](index=93&type=chunk) - Gain from sale or disposal of assets increased to **$8.3 million** from **$1.4 million**[93](index=93&type=chunk) - Interest expense increased to **$11.3 million** from **$10.7 million** due to higher interest rates on variable rate indebtedness[94](index=94&type=chunk) [Liquidity and Capital Resources](index=18&type=section&id=Liquidity%20and%20Capital%20Resources) - The Company's principal sources of liquidity are expected to be cash flow from operations, borrowings under its line of credit, and long-term debt financing[113](index=113&type=chunk) - Management believes current financial resources will be sufficient to meet planned capital expenditures and working capital requirements for the foreseeable future[113](index=113&type=chunk) [Capital Expenditures](index=18&type=section&id=Capital%20Expenditures) - Capital expenditures totaled **$98.4 million** for the six months ended March 30, 2024[97](index=97&type=chunk) - Planned capital expenditures for fiscal 2024 are estimated between **$160 million** and **$200 million**, primarily for store improvements, technology, and equipment upgrades[98](index=98&type=chunk)[99](index=99&type=chunk) - Annual capital expenditures are expected to be in the range of **$120 million** to **$160 million** going forward to maintain a modern store base[100](index=100&type=chunk) [Liquidity](index=19&type=section&id=Liquidity) - Net cash from operations decreased by **$8.5 million** to **$85.9 million** for the March 2024 six-month period due to lower net income[102](index=102&type=chunk) - Cash used by investing activities increased to **$94.6 million**, primarily due to capital expenditures[103](index=103&type=chunk) - Cash used by financing activities decreased to **$17.9 million**, mainly due to principal payments on long-term debt[103](index=103&type=chunk) - The Company has a **$150.0 million** line of credit with no outstanding borrowings at March 30, 2024, and was in compliance with all debt covenants[105](index=105&type=chunk)[112](index=112&type=chunk) - Under the most restrictive covenants, the Company could incur approximately **$1.7 billion** of additional borrowings as of March 30, 2024[112](index=112&type=chunk) [Quarterly Cash Dividends](index=20&type=section&id=Quarterly%20Cash%20Dividends) - The Company has consistently paid quarterly cash dividends of **$0.165 per share** on Class A Common Stock and **$0.15 per share** on Class B Common Stock since December 1993[115](index=115&type=chunk) - Future dividend payments are at the discretion of the Board of Directors and are subject to financial performance and debt covenant restrictions[116](index=116&type=chunk) [Seasonality](index=20&type=section&id=Seasonality) - Grocery sales exhibit slight seasonal variance, with higher sales in the first fiscal quarter (Thanksgiving, Christmas) and lowest sales in the second quarter (unless Easter falls within it) due to seasonal homes[117](index=117&type=chunk) [Impact of Inflation](index=20&type=section&id=Impact%20of%20Inflation) - Inflation impacts labor, food, energy, and transportation costs, with overall inflation declining from recent highs in the past twelve months[118](index=118&type=chunk) | CPI Category | Twelve Months Ended March 2024 | | :---------------- | :----------------------------- | | All items | 3.5 % | | Food at home | 1.2 % | | Energy | 2.1 % | [Forward-Looking Statements](index=20&type=section&id=Forward-Looking%20Statements) - The report contains forward-looking statements subject to significant risks and uncertainties, including competition, economic conditions, labor/utility costs, and regulatory changes[120](index=120&type=chunk)[121](index=121&type=chunk) - The Company disclaims any obligation to update these statements to reflect future events or developments, except as required by law[122](index=122&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=21&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the Company's market risk exposure, primarily interest rate fluctuations, with no material changes - The Company is party to interest rate swap agreements with a current aggregate notional amount of **$142.3 million**[123](index=123&type=chunk) - The Company does not use financial instruments for trading or speculative purposes[123](index=123&type=chunk) - No material changes in market risk factors have occurred since the Annual Report on Form 10-K for the year ended September 30, 2023[123](index=123&type=chunk) [Item 4. Controls and Procedures](index=21&type=section&id=Item%204.%20Controls%20and%20Procedures) This section evaluates the Company's disclosure controls and procedures and reports on internal control changes [Evaluation of Disclosure Controls and Procedures](index=21&type=section&id=Evaluation%20Of%20Disclosure%20Controls%20And%20Procedures) - The Company maintains disclosure controls and procedures designed to ensure timely and accurate reporting of information in Exchange Act reports[124](index=124&type=chunk) - As of March 30, 2024, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective[125](index=125&type=chunk) [Changes in Internal Control over Financial Reporting](index=21&type=section&id=Changes%20In%20Internal%20Control%20Over%20Financial%20Reporting) - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[126](index=126&type=chunk) [Part II – Other Information](index=22&type=section&id=Part%20II%20%E2%80%93%20Other%20Information) [Item 5. Other Information](index=22&type=section&id=Item%205.%20Other%20Information) This section confirms no officers or directors adopted or terminated Rule 10b5-1 trading arrangements - No officers or directors adopted or terminated any Rule 10b5-1(c) trading arrangements during the six months ended March 30, 2024[128](index=128&type=chunk) [Item 6. Exhibits](index=22&type=section&id=Item%206.%20Exhibits) This section lists the Form 10-Q exhibits, including certifications and financial information in iXBRL format - Exhibits include Rule 13a-14(a) Certifications (31.1, 31.2), Certification Pursuant to 18 U.S.C. Section 1350 (32.1, 32.2), and financial information in iXBRL format (101, 104)[130](index=130&type=chunk) [Signatures](index=23&type=section&id=Signatures) This section contains the required signatures from the CEO, President, VP-Finance, and CFO, certifying the report - The report is signed by James W. Lanning, Chief Executive Officer and President, and Patricia E. Jackson, Vice President-Finance and Chief Financial Officer, on May 9, 2024[133](index=133&type=chunk)

Financial Performance - Net sales for Q2 2024 totaled $1.37 billion, a decrease of 0.95% from $1.38 billion in Q2 2023[2] - Gross profit for Q2 2024 was $321.9 million, representing 23.5% of sales, compared to $325.9 million or 23.6% in Q2 2023[3] - Net income for Q2 2024 was $31.9 million, down from $40.5 million in Q2 2023, with basic earnings per share of $1.72 compared to $2.18 in the prior year[4] - For the first half of fiscal 2024, net sales were $2.85 billion, a decrease of 0.88% from $2.87 billion in the same period last year[5] - Gross profit for the first half of fiscal 2024 was $670.7 million, down from $697.1 million, with a gross profit margin of 23.5% compared to 24.3% in the first half of fiscal 2023[5] Expenses and Debt - Operating and administrative expenses for the first half of fiscal 2024 totaled $574.6 million, an increase from $545.1 million in the same period last year[6] - Interest expense for the first half of fiscal 2024 increased to $11.3 million from $10.7 million in the prior year[8] - Total debt as of March 30, 2024, was $539.1 million, down from $556.7 million as of March 25, 2023[8] Capital Expenditures and Financial Resources - Capital expenditures for the first half of fiscal 2024 were $98.4 million, compared to $91.4 million in the same period last year[10] - The company has no outstanding borrowings under its $150.0 million line of credit, indicating sufficient financial resources for planned expenditures[10]

Financial Performance - Net income for the three-month period ended December 30, 2023, totaled $43.4 million, a decrease of 37.5% compared to $69.4 million for the same period in 2022[82]. - Net sales decreased by $12.3 million, or 0.82%, to $1.48 billion for the three months ended December 30, 2023, compared to $1.49 billion for the same period in 2022[73]. - Gross profit for the three-month period ended December 30, 2023, was $348.8 million, a decrease of $22.4 million, or 6.0%, from $371.2 million for the same period in 2022[74]. - Operating and administrative expenses increased by $13.6 million, or 4.9%, to $289.8 million for the three months ended December 30, 2023, compared to $276.2 million for the same period in 2022[76]. - The company generated $15.5 million in net cash from operations for the December 2023 quarter, a decrease from $57.3 million in the December 2022 quarter[88]. Debt and Liquidity - Total debt at December 30, 2023, was $546.9 million, down from $564.5 million at December 24, 2022[80]. - The Company completed the funding of $99.7 million of Bonds for the construction of new warehouse and distribution space, maturing on January 1, 2036[92]. - As of December 30, 2023, the outstanding balance of the Bonds is $54.4 million, with mandatory annual redemptions of $4.5 million starting from January 1, 2014[93]. - The Company refinanced approximately $60 million secured borrowing obligations with a SOFR-based loan, maturing in October 2027, and has an interest rate swap agreement for a notional amount of $23.0 million at a fixed rate of 3.962%[94]. - The Company was in compliance with its financial covenants as of December 30, 2023, allowing for approximately $1.7 billion of additional borrowings[98]. - The Company's principal sources of liquidity include cash flow from operations and long-term debt financing, which are expected to meet planned capital expenditures and working capital requirements[99]. Capital Expenditures - Capital expenditures totaled $63.2 million for the three-month period ended December 30, 2023, with plans for fiscal 2024 capital expenditures estimated between $160 million and $200 million[83][84]. Store Operations - The company operated 198 stores as of December 30, 2023, maintaining the same number of stores as of December 24, 2022[73]. Tax and Dividends - The effective tax rate for the three months ended December 30, 2023, was 24.6%, compared to 24.5% for the same period in 2022[81]. - The Company has paid regular quarterly cash dividends of $0.165 per share on Class A Common Stock and $0.15 per share on Class B Common Stock since December 27, 1993[101]. - The Company expects to continue paying regular cash dividends, subject to the discretion of the Board of Directors and compliance with financial covenants[102]. Market Conditions - The annualized change in the Consumer Price Index for all items was 3.4%, with food at home increasing by 1.3% and energy costs decreasing by 2.0% over the past twelve months[105]. Risk Management - The Company is a party to interest rate swap agreements for a current aggregate notional amount of $145.7 million, with no significant changes in market risk factors reported[109].

Financial Performance - Total revenues for the fiscal year ended September 30, 2023, were $5,892.8 million, an increase from $5,678.8 million in 2022, representing a growth of 3.8%[27] - Grocery revenues reached $2,062.4 million in 2023, up from $1,940.4 million in 2022, marking an increase of 6.3%[27] - Perishables revenues increased to $1,482.1 million in 2023 from $1,445.0 million in 2022, reflecting a growth of 2.6%[27] - The company’s income from operations for retail was $263.2 million in 2023, down from $353.0 million in 2022, a decrease of 25.5%[27] Store Operations - The company operated 189 supermarkets under the "Ingles" name and nine under "Sav-Mor" as of September 30, 2023[29] - The average sales per store for the fiscal year 2023 was $28,565, an increase from $27,622 in 2022, indicating a growth of 3.4%[33] - The Company opened no new stores in fiscal year 2023, maintaining a total of 198 stores[49] - The average store size increased to 57,589 square feet in 2023 from 57,281 square feet in 2022[49] Customer Service and Convenience - The company operates 114 pharmacies and 108 fuel stations at its grocery store locations, aiming to improve customer service and convenience[29] - The Ingles Curbside service is available at 129 stores, with plans to add more each month[37] - The company plans to continue its renovation and expansion strategy to enhance customer convenience and modernize store layouts[20] Supply Chain and Inventory - The Company supplies approximately 57% of its supermarkets' inventory from its own distribution facilities, totaling 1.65 million square feet[40] - The Company experienced increased customer traffic and occasional product shortages due to supply chain issues during the fiscal year ended September 30, 2023[44] Workforce and Labor Market - The Company had approximately 26,420 associates as of September 30, 2023, with 93% being supermarket personnel[57] - The Company is facing a tight labor market, impacting its ability to attract and retain qualified personnel[44] - The Company has slowed new store and remodeling plans due to inflation and supply chain issues[47] Competitive Advantages - The Company believes its competitive advantages include convenient locations and quality service[52] Debt and Financial Instruments - As of September 30, 2023, the total long-term debt with variable interest rates amounts to $151,070,000, with an average interest rate of 6.95%[170] - The Recovery Zone Bonds with variable interest rates total $54,440,000, maintaining an average year-end interest rate of 5.20%[170] - The Company has $350,000,000 in Senior Notes with a fixed interest rate of 4.00%[170] - The long-term debt with variable interest rates increased from $164,833,000 in September 24, 2022 to $151,070,000 in September 30, 2023, reflecting a decrease in total debt[170] - The average year-end interest rate for long-term debt decreased from 4.09% in 2022 to 6.95% in 2023[170] - The Company does not consider potential near-term losses from changes in interest rates and exchange rates to be material[172] - The Company has not utilized highly leveraged financial instruments for interest rate risk management[172] - The average interest rate for Recovery Zone Bonds decreased from 2.94% in 2022 to 5.20% in 2023[170] - The Company has a fixed interest rate swap that fixes at 3.962% for $24.5 million of variable interest rate debt[172] - The Company has a fixed interest rate swap that fixes at 2.998% for $124.6 million of variable interest rate debt[171] Regulatory Environment - The Company is subject to various governmental regulations, including those from the U.S. Food and Drug Administration and the Occupational Safety and Health Administration[65]