Ingles Markets(IMKTA) - 2025 Q1 - Quarterly Report

Part I – Financial Information Item 1. Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements, including balance sheets, income statements, equity changes, cash flows, and detailed notes Condensed Consolidated Balance Sheets 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 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 - Total Stockholders' Equity increased from $1.55 billion at September 28, 2024, to $1.56 billion at December 28, 2024[13] - Net income for the three months ended December 28, 2024, was $16.6 million[13] - Cash dividends paid during the period totaled $3.07 million[13] Condensed Consolidated Statements of Cash Flows 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 A. BASIS OF PREPARATION - The unaudited interim financial statements include all necessary normal recurring adjustments[17] - 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] - Results for the three months ended December 28, 2024, are not necessarily indicative of the full fiscal year[18] B. NEW ACCOUNTING PRONOUNCEMENTS - The Company adopted SOFR for LIBOR-based debt and interest rate swaps, which did not materially impact financial statements[19] - 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][21][22] C. SHORT TERM INVESTMENTS - The Company purchases financial products like money market funds, bonds, and mutual funds as short-term investments[23] - The carrying values of these short-term investments approximate fair value due to their liquidity[23] D. ALLOWANCE FOR DOUBTFUL ACCOUNTS Allowance for Doubtful Accounts (in thousands) | Metric | December 28, 2024 | September 28, 2024 | | :-------------------------------- | :------------------ | :------------------- | | Allowance for doubtful accounts | $483.9 | $474.7 | E. INCOME TAXES - The Company's effective tax rate differs from the federal statutory rate primarily due to state income taxes and tax credits[25] - Unrecognized tax benefits and related interest and penalties are insignificant and not expected to change materially within the next twelve months[25] F. ACCRUED EXPENSES AND CURRENT PORTION OF OTHER LONG-TERM LIABILITIES 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] - 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] G. LONG-TERM DEBT - The Company has $350.0 million aggregate principal amount of 4.00% senior notes due 2031[29] - A $150.0 million line of credit matures in June 2026, with no outstanding borrowings at December 28, 2024[29] - The outstanding balance of Facility Bonds due 2036 was $49.9 million as of December 28, 2024[31] - 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][34] - The Company was in compliance with all financial covenants at December 28, 2024[36] H. DIVIDENDS 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 - 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] - Class B Common Stock has ten votes per share and is convertible into one share of Class A Common Stock at any time[42] - Earnings per share are calculated using the two-class method[43] 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 - Operating lease rent expense totaled $1.7 million for the three months ended December 28, 2024[47] - Finance lease cost was $210.0 thousand for the three months ended December 28, 2024[48] - The weighted average remaining lease term for operating leases was 15.0 years as of December 28, 2024[49] - The Company owns and operates 100 shopping centers, leasing portions to others under non-cancelable operating lease agreements[50] 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 - The Company operates one primary business segment: retail grocery sales; 'Other' includes fluid dairy and shopping center rentals[54] 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 - The fair values of the Company's debt, interest rate swaps, and non-qualified retirement plan assets are estimated using Level 2 inputs[59] 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 - 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] - The Company is assessing inventory loss claims related to Hurricane Helene, but recovery was not yet deemed probable as of December 28, 2024[61] N. RELATED PARTY TRANSACTIONS - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, Hurricane Helene's impact, critical accounting policies, liquidity, capital, seasonality, and inflation Overview - Ingles operates 198 supermarkets across North Carolina, Georgia, South Carolina, Tennessee, Virginia, and Alabama[63] - Three of the four stores temporarily closed due to Hurricane Helene are expected to reopen during 2025[63] - 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] Impact of Hurricane Helene - 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] - Insurance proceeds of $1.0 million related to property loss were received in October 2024[66] - 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] - 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] Critical Accounting Policies and Estimates Self-Insurance - The Company is self-insured for workers' compensation, general liability, and group medical and dental benefits, with excess liability coverage[68] - Self-insurance reserves totaled $36.7 million at December 28, 2024, including $4.0 million of expected self-insurance recoveries[68] Asset Impairments - 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] - There were no asset impairments during the three-month period ended December 28, 2024[69] Vendor Allowances - Vendor allowances are primarily recorded as a component of item cost in inventory and recognized in merchandise costs when the item is sold[70] 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 - 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] - 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] - Comparable store sales (excluding fuel) decreased by 9.4% over the comparative fiscal quarter[77] 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] - Repairs and maintenance expense increased by $2.8 million due to cleanup and repairs required by Hurricane Helene[82] Liquidity and Capital Resources Capital Expenditures - Capital expenditures totaled $37.8 million for the three months ended December 28, 2024[87] - 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] - Annual capital expenditures are expected to be in the range of $100 to $160 million going forward to maintain a modern store base[90] 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] - 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] - The Company has a $150.0 million line of credit with no outstanding borrowings at December 28, 2024[95] - 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] Quarterly Cash Dividends - 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] - The continuation and amount of future dividends are at the discretion of the Board of Directors and subject to certain debt covenant restrictions[106] Seasonality - Grocery sales are traditionally higher in the first fiscal quarter due to Thanksgiving and Christmas[107] - The second fiscal quarter typically has the lowest sales, predominantly due to lower occupancy of seasonal homes[107] - Sales in the third and fourth quarters are usually positively affected by the return of customers to seasonal homes[107] Impact of Inflation - Inflation affects labor costs, and energy costs impact fuel sales, distribution expenses, and plastic supply costs[108] 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 - The report contains forward-looking statements that are subject to significant risks and uncertainties, many beyond the Company's control[110] - 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][111] - The Company does not undertake any obligation to update these statements to reflect future events or developments, except as required by applicable law[112] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] - The Company does not typically utilize financial instruments for trading or other speculative purposes[113] - 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] Item 4. Controls and Procedures 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] - 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] Part II – Other Information Item 5. Other Information 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] Item 6. Exhibits 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] - Financial information from the Quarterly Report on Form 10-Q is furnished in iXBRL format[120] 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] - Signatories include James W. Lanning (Chief Executive Officer and President) and Patricia E. Jackson, CPA (Vice President-Finance and Chief Financial Officer)[122]