Village Super Market - 10-Q quarterly report FY

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

(Mark One)

OR

Commission File No. 0-2633

(Exact name of registrant as specified in its charter)

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   X       No ___

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12-b2 of the Exchange Act. (Check one):

Large accelerated filer ____    Accelerated filer    X      Non-accelerated filer ____

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

VILLAGE SUPER MARKET, INC.

VILLAGE SUPER MARKET, INC.

(in Thousands) (Unaudited)

See accompanying Notes to Consolidated Condensed Financial Statements.

VILLAGE SUPER MARKET, INC.

(in Thousands except Per Share Amounts) (Unaudited)

See accompanying Notes to Consolidated Condensed Financial Statements.

VILLAGE SUPER MARKET, INC.

(in Thousands) (Unaudited)

See accompanying Notes to Consolidated Condensed Financial Statements.

VILLAGE SUPER MARKET, INC.

(in Thousands) (Unaudited)

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

(Dollars in Thousands)

The Company operates a chain of 25 ShopRite supermarkets in New Jersey and northeastern Pennsylvania.  Village is the second largest member of Wakefern Food Corporation (“Wakefern”), the nation’s largest retailer-owned food cooperative.  As further described in the Company’s Form 10-K, this ownership interest in Wakefern provides the Company many of the economies of scale in purchasing, distribution, advanced retail technology and advertising associated with larger chains.

On August 11, 2007, the Company acquired the fixtures and lease of a store location in Galloway Township, New Jersey from Wakefern for $3,500.  The store had previously been operated by a competitor.  The Company began operating a pharmacy at this location on August 11, 2007.  The remainder of this 55,000 sq. ft. store opened on October 3, 2007 after the completion of a remodel.  In addition, the Company opened a new superstore in Franklin Township, New Jersey on November 7, 2007.

The Company’s stores, five of which are owned, average 55,000 total square feet.  Larger store sizes enable the Company to offer the specialty departments that customers desire for one-stop shopping, including pharmacies, natural and organic departments, ethnic and international foods, and home meal replacement.

We consider a variety of indicators to evaluate our performance, such as same store sales; sales per store; percentage of total sales by department (mix); shrink; departmental gross profit percentage; sales per labor hour; and hourly labor rates.  In recent years, Village, as well as many of our competitors, has experienced increases in rates for electricity and gas, and in  employee health and pension costs.   These trends are expected to continue in fiscal 2008.

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

Sales.  Sales were $263,559 in the first quarter of fiscal 2008, an increase of 4.8% compared to the first quarter of the prior year.  Sales increased due to the opening of the new store in Galloway, New Jersey on October 3, 2007 and a 3.6% increase in same store sales.  Same store sales increased due to improved sales in one store due to the closing of a store by a competitor, higher sales in the Somers Point replacement store, and increased promotional spending in the first quarter of fiscal 2008.  These improvements were partially offset by reduced sales in four stores due to three competitive store openings.  Improved transaction count and average transaction size both contributed to the increase in same store sales.  New stores and replacement stores are included in same store sales in the quarter after the store has been in operation for four full quarters. Store renovations are included in same store sales immediately.

Critical accounting policies are those accounting policies that management believes are important to the portrayal of the Company’s financial condition and results of operations.  These policies require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.  The Company’s critical accounting policies relating to the impairment of long-lived assets and goodwill, accounting for patronage dividends earned as a stockholder of Wakefern,  accounting for pension plans, accounting for share-based compensation, and accounting for tax contingencies, are described in the Company’s Annual Report on Form 10-K for the year ended July 28, 2007.  As of October 27, 2007, there have been no changes to any of the critical accounting policies contained therein, except for the adoption of FIN 48 as described herein.

Net cash provided by operating activities was $6,239 in the first quarter of fiscal 2008 compared with $3,905 in the corresponding period of the prior year.  This increase is primarily attributable to an increase in accounts payable to Wakefern and accounts payable and accrued expenses in the current fiscal year, partially offset by a larger increase in inventories in the current fiscal year.

During the first quarter of fiscal 2008, Village used cash to fund capital expenditures of $13,117, debt payments of $4,767, acquisition of the Galloway store assets of $3,500, and dividends of $1,351.  Capital expenditures consisted primarily of the funding of the construction and the equipment of the new, leased Franklin store, which opened on November 7, 2007, and the remodel of the Galloway store, which was acquired on August 11, 2007.  Debt payments made include the fifth installment of $4,286 on Village’s unsecured Senior Notes.

Working capital was $7,746 at October 27, 2007 compared to $22,359 at July 28, 2007.  The working capital ratio was 1.10 to 1 at October 27, 2007 compared to 1.30 to 1 at July 28, 2007.  Working capital declined due to the use of cash to fund capital expenditures, debt payments and the acquisition of the Galloway store assets.  The Company’s working capital needs are reduced, since inventory is generally sold by the time payments to Wakefern and other suppliers are due.

Village has budgeted approximately $24,000 for capital expenditures in fiscal 2008.  In addition to the Franklin and Galloway stores, planned capital expenditures include the beginning of the construction of a replacement store in Washington, New Jersey.  Village has loaned the developer of the Franklin store a portion of the funds needed to prepare the site and construct the store.  The amount of this loan at October 27, 2007 was $6,700.  Village received a loan payment of $1,666 on November 15, 2007.  The remainder of the loan is expected to be repaid during the second quarter of fiscal 2008.  The loan to the developer is presented as capital expenditures in the financial statements in accordance with EITF Issue No. 97-10, “The Effect of Lessee Involvement in Asset Construction”.  The Company’s primary sources of liquidity in fiscal 2008 are expected to be cash and cash equivalents on hand and operating cash flow generated in fiscal 2008.

There have been no substantial changes as of October 27, 2007 to the contractual obligations and commitments discussed on page 8 of the Company’s Annual Report on Form 10-K for the year ended July 28, 2007, except for the additional $1,200 required investment in Wakefern stock and unrecognized tax benefits of $4,263 described herein.

A description of the Company’s transactions with Wakefern, its principal supplier, and with other related parties is included on pages 8, 9, 18 and 21 of the Company’s Annual Report on Form 10-K for the year ended July 28, 2007.  There have been no significant changes in the Company’s relationship or nature of transactions with related parties during the first quarter of fiscal 2008 except for an additional required investment in Wakefern common stock of $1,200  and the acquisition of the Galloway store location described previously herein.

All statements, other than statements of historical fact, included in this Form 10-Q are or may be considered forward-looking statements within the meaning of federal securities law.  The Company cautions the reader that there is no assurance that actual results or business conditions will not differ materially from future results, whether expressed, suggested or implied by such forward-looking statements.  The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof. The following are among the principal factors that could cause actual results to differ from the forward-looking statements: local economic conditions; competitive pressures from the Company’s operating environment; the ability of the Company to maintain and improve its sales and margins; the ability to attract and retain qualified associates; the availability of new store locations; the availability of capital; the liquidity of the Company; the success of operating initiatives; consumer spending patterns; the impact of higher energy prices; increased cost of goods sold, including increased costs from the Company’s principal supplier, Wakefern; the results of litigation; the results of tax examinations; the results of union contract negotiations; competitive store openings; the rate of return on pension assets; and other factors detailed herein and in other filings of the Company.

The Company is exposed to market risks arising from adverse changes in interest rates.  As of October 27, 2007 the Company’s only variable rate borrowings relate to an interest rate swap agreement.  On October 18, 2001, the Company entered into an interest rate swap agreement with a major financial institution pursuant to which the Company pays a variable rate of six-month LIBOR plus 3.36% (8.19% at October 27, 2007) on an initial notional amount of $10,000 expiring in September 2009 in exchange for a fixed rate of 8.12%.  The swap agreement notional amount decreases in amounts and on dates corresponding to the fixed rate obligation it hedges.  At October 27, 2007 the remaining notional amount of the swap agreement was $2,857.  A 1% increase in interest rates, applied to the Company’s borrowings at October 27, 2007 would result in an annual increase in interest expense and a corresponding reduction in cash flow of approximately $29.  The fair value of the Company’s fixed rate debt approximates carrying value at October 27, 2007.

As required by Rule 13a-15 under the Exchange Act, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures at the end of the period.  This evaluation was carried out under the supervision, and with the participation, of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer.  Based upon that evaluation, the Company’s Chief Executive Officer, along with the Company’s Chief Financial Officer, concluded that the Company’s disclosure controls and procedures are effective.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

Exhibit 31.1   Certification

Exhibit 31.2   Certification

Exhibit 32.1   Certification (furnished, not filed)

Exhibit 32.2   Certification (furnished, not filed)

Exhibit 99.1  Press Release dated December 5, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.