UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneMarch 25, 20222023
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file numberFile Number: 0-14706.
INGLES MARKETS, INCORPORATED
(Exact name of registrant as specified in its charter)
North Carolina |
| 56-0846267 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
P.O. Box 6676, Asheville NC |
| 28816 |
(Address of principal executive offices) |
| (Zip Code) |
(828) 669-2941
(Registrant’s telephone number, including area codecode)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading | Name of each exchange on which registered |
Class A Common Stock, $0.05 par value per share | IMKTA | The NASDAQ Global Select Market |
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 has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer x | Accelerated Filer ¨ |
Non-Accelerated Filer ¨ | Smaller Reporting Company ¨ |
Emerging Growth Company ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x.
As of August 1, 2022,May 2, 2023, the Registrantregistrant had 14,372,41014,406,925 shares of Class A Common Stock, $0.05 par value per share, outstanding and 4,621,9664,587,451 shares of Class B Common Stock, $0.05 par value per share, outstanding.
INGLES MARKETS, INCORPORATED
INDEX
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| Page No.
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Part I – Financial Information |
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Item 1. Financial Statements (Unaudited) |
|
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Condensed Consolidated Balance Sheets as of |
| 3 |
Condensed Consolidated Statements of Income and Comprehensive Income for the |
| |
Three Months Ended | 4 | |
| 5 | |
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months and |
| 6 |
Condensed Consolidated Statements of Cash Flows for the |
| 7 |
Notes to Unaudited Interim Financial Statements |
| 8 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 14 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
|
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Item 4. Controls and Procedures |
| |
Part II – Other Information |
| |
Item 6. Exhibits |
| 22 |
Signatures |
| 23 |
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 25, | September 25, | March 25, | September 24, | |||||||||
2022 | 2021 | 2023 | 2022 | |||||||||
ASSETS | ||||||||||||
Current Assets: | ||||||||||||
Cash and cash equivalents | $ | 126,047,581 | $ | 70,313,350 | $ | 250,303,676 | $ | 267,198,517 | ||||
Short term investments | 115,210,267 | 5,000,000 | ||||||||||
Receivables - net | 99,366,859 | 95,082,014 | 96,844,945 | 97,157,614 | ||||||||
Inventories | 418,570,247 | 389,953,456 | 474,247,848 | 457,945,539 | ||||||||
Other current assets | 19,906,759 | 15,091,595 | 32,272,754 | 15,830,032 | ||||||||
Total Current Assets | 779,101,713 | 575,440,415 | 853,669,223 | 838,131,702 | ||||||||
Property and Equipment - Net | 1,357,265,904 | 1,370,769,432 | 1,403,989,312 | 1,374,031,169 | ||||||||
Operating lease right of use assets | 38,263,784 | 40,145,098 | 40,144,201 | 38,594,968 | ||||||||
Other Assets | 40,765,038 | 31,989,010 | 43,262,053 | 44,752,886 | ||||||||
Total Assets | $ | 2,215,396,439 | $ | 2,018,343,955 | $ | 2,341,064,789 | $ | 2,295,510,725 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current Liabilities: | ||||||||||||
Current portion of long-term debt | $ | 17,619,769 | $ | 17,600,739 | $ | 17,529,304 | $ | 17,620,789 | ||||
Current portion of operating lease liabilities | 7,964,891 | 8,635,998 | 7,019,650 | 7,797,975 | ||||||||
Accounts payable - trade | 211,930,958 | 189,432,027 | 192,287,038 | 213,388,385 | ||||||||
Accrued expenses and current portion of other long-term liabilities | 81,910,253 | 90,428,567 | 75,662,988 | 94,969,902 | ||||||||
Total Current Liabilities | 319,425,871 | 306,097,331 | 292,498,980 | 333,777,051 | ||||||||
Deferred Income Taxes | 75,307,000 | 72,768,000 | 69,712,000 | 73,578,000 | ||||||||
Long-Term Debt | 557,560,125 | 571,913,204 | 539,161,073 | 554,287,420 | ||||||||
Noncurrent operating lease liabilities | 32,393,387 | 33,887,935 | 35,124,926 | 32,794,609 | ||||||||
Other Long-Term Liabilities | 41,878,813 | 50,418,947 | 44,361,613 | 41,479,220 | ||||||||
Total Liabilities | 1,026,565,196 | 1,035,085,417 | 980,858,592 | 1,035,916,300 | ||||||||
Stockholders’ Equity | ||||||||||||
Preferred stock, $0.05 par value; 10,000,000 shares authorized; 0 shares issued | — | — | ||||||||||
Preferred stock, $0.05 par value; 10,000,000 shares authorized; no shares issued | — | — | ||||||||||
Common stocks: | ||||||||||||
Class A, $0.05 par value; 150,000,000 shares authorized; | 718,621 | 713,567 | ||||||||||
Class B, convertible to Class A, $0.05 par value; | 231,098 | 236,152 | ||||||||||
Class A, $0.05 par value; 150,000,000 shares authorized; | 719,346 | 718,879 | ||||||||||
Class B, convertible to Class A, $0.05 par value; | 230,373 | 230,840 | ||||||||||
Paid-in capital in excess of par value | — | — | — | — | ||||||||
Accumulated other comprehensive income (loss) | 8,744,282 | (3,426,140) | ||||||||||
Accumulated other comprehensive income | 9,236,818 | 12,406,551 | ||||||||||
Retained earnings | 1,179,137,242 | 985,734,959 | 1,350,019,660 | 1,246,238,155 | ||||||||
Total Stockholders’ Equity | 1,188,831,243 | 983,258,538 | 1,360,206,197 | 1,259,594,425 | ||||||||
Total Liabilities and Stockholders’ Equity | $ | 2,215,396,439 | $ | 2,018,343,955 | $ | 2,341,064,789 | $ | 2,295,510,725 | ||||
See notes to unaudited condensed consolidated financial statements.
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended | Three Months Ended | |||||||||||
June 25, | June 26, | March 25, | March 26, | |||||||||
2022 | 2021 | 2023 | 2022 | |||||||||
Net sales | $ | 1,458,166,802 | $ | 1,277,465,132 | $ | 1,380,604,140 | $ | 1,377,118,668 | ||||
Cost of goods sold | 1,106,287,695 | 939,999,706 | 1,054,664,179 | 1,028,556,135 | ||||||||
Gross profit | 351,879,107 | 337,465,426 | 325,939,961 | 348,562,533 | ||||||||
Operating and administrative expenses | 257,342,642 | 239,409,986 | 268,890,164 | 254,739,175 | ||||||||
Gain from sale or disposal of assets | 26,660 | 2,529,504 | 597,218 | 1,265,254 | ||||||||
Income from operations | 94,563,125 | 100,584,944 | 57,647,015 | 95,088,612 | ||||||||
Other income, net | 1,208,422 | 678,392 | 1,734,456 | 1,344,269 | ||||||||
Interest expense | 5,285,639 | 5,529,211 | 5,344,666 | 5,425,534 | ||||||||
Loss on early extinguishment of debt | — | 1,082,633 | ||||||||||
Income before income taxes | 90,485,908 | 94,651,492 | 54,036,805 | 91,007,347 | ||||||||
Income tax expense | 22,723,000 | 22,677,000 | 13,497,000 | 22,366,000 | ||||||||
Net income | $ | 67,762,908 | $ | 71,974,492 | $ | 40,539,805 | $ | 68,641,347 | ||||
Other comprehensive income (loss): | ||||||||||||
Other comprehensive (loss) income: | ||||||||||||
Change in fair value of interest rate swap | $ | 4,341,122 | $ | (865,315) | $ | (2,671,226) | $ | 9,896,413 | ||||
Income tax (benefit) expense | (1,060,000) | 211,000 | ||||||||||
Other comprehensive income (loss), net of tax | 3,281,122 | (654,315) | ||||||||||
Income tax benefit (expense) | 652,000 | (2,418,000) | ||||||||||
Other comprehensive (loss) income, net of tax | (2,019,226) | 7,478,413 | ||||||||||
Comprehensive income | $ | 71,044,030 | $ | 71,320,177 | $ | 38,520,579 | $ | 76,119,760 | ||||
Per share amounts: | ||||||||||||
Class A Common Stock | ||||||||||||
Basic earnings per common share | $ | 3.65 | $ | 3.88 | $ | 2.18 | $ | 3.70 | ||||
Diluted earnings per common share | $ | 3.57 | $ | 3.79 | $ | 2.13 | $ | 3.61 | ||||
Class B Common Stock | ||||||||||||
Basic earnings per common share | $ | 3.32 | $ | 3.52 | $ | 1.98 | $ | 3.36 | ||||
Diluted earnings per common share | $ | 3.32 | $ | 3.52 | $ | 1.98 | $ | 3.36 | ||||
Cash dividends per common share | ||||||||||||
Class A Common Stock | $ | 0.165 | $ | 0.165 | $ | 0.165 | $ | 0.165 | ||||
Class B Common Stock | $ | 0.150 | $ | 0.150 | $ | 0.150 | $ | 0.150 | ||||
See notes to unaudited condensed consolidated financial statements.
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
Nine Months Ended | Six Months Ended | |||||||||||
June 25, | June 26, | March 25, | March 26, | |||||||||
2022 | 2021 | 2023 | 2022 | |||||||||
Net sales | $ | 4,226,814,981 | $ | 3,652,463,010 | $ | 2,873,918,247 | $ | 2,768,648,179 | ||||
Cost of goods sold | 3,175,829,075 |
| 2,690,309,051 | 2,176,823,396 |
| 2,069,541,379 | ||||||
Gross profit | 1,050,985,906 | 962,153,959 | 697,094,851 | 699,106,800 | ||||||||
Operating and administrative expenses | 772,167,222 | 714,459,236 | 545,069,422 | 514,824,580 | ||||||||
Gain from sale or disposal of assets | 1,235,886 | 3,644,501 | 1,377,302 | 1,209,226 | ||||||||
Income from operations | 280,054,570 | 251,339,224 | 153,402,731 | 185,491,446 | ||||||||
Other income, net | 4,144,746 | 2,015,696 | 3,176,063 | 2,936,323 | ||||||||
Interest expense | 16,125,044 | 18,124,714 | 10,691,508 | 10,839,405 | ||||||||
Loss on early extinguishment of debt | — | 1,082,633 | ||||||||||
Income before income taxes | 268,074,273 | 234,147,573 | 145,887,286 | 177,588,364 | ||||||||
Income tax expense | 65,481,000 | 56,160,000 | 35,976,000 | 42,758,000 | ||||||||
Net income | $ | 202,593,273 | $ | 177,987,573 | $ | 109,911,286 | $ | 134,830,364 | ||||
Other comprehensive income: | ||||||||||||
Other comprehensive (loss) income: | ||||||||||||
Change in fair value of interest rate swap | $ | 16,104,422 | $ | 8,654,299 | $ | (4,193,733) | $ | 11,763,300 | ||||
Income tax benefit | (3,934,000) | (2,114,000) | ||||||||||
Other comprehensive income, net of tax | 12,170,422 | 6,540,299 | ||||||||||
Income tax benefit (expense) | 1,024,000 | (2,874,000) | ||||||||||
Other comprehensive (loss) income, net of tax | (3,169,733) | 8,889,300 | ||||||||||
Comprehensive income | $ | 214,763,695 | $ | 184,527,872 | $ | 106,741,553 | $ | 143,719,664 | ||||
Per share amounts: | ||||||||||||
Class A Common Stock | ||||||||||||
Basic earnings per common share | $ | 10.91 | $ | 9.22 | $ | 5.92 | $ | 7.26 | ||||
Diluted earnings per common share | $ | 10.67 | $ | 8.98 | $ | 5.79 | $ | 7.10 | ||||
Class B Common Stock | ||||||||||||
Basic earnings per common share | $ | 9.92 | $ | 8.38 | $ | 5.38 | $ | 6.60 | ||||
Diluted earnings per common share | $ | 9.92 | $ | 8.38 | $ | 5.38 | $ | 6.60 | ||||
Cash dividends per common share | ||||||||||||
Class A Common Stock | $ | 0.495 | $ | 0.495 | $ | 0.33 | $ | 0.33 | ||||
Class B Common Stock | $ | 0.450 | $ | 0.450 | $ | 0.30 | $ | 0.30 | ||||
See notes to unaudited condensed consolidated financial statements.
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
THREE AND NINESIX MONTHS ENDED JUNEMARCH 25, 20222023 AND JUNEMARCH 26, 20212022
Paid-in | Accumulated | Paid-in | Accumulated | |||||||||||||||||||||||||||||||||||||||||
Class A | Class B | Capital in | Other | Class A | Class B | Capital in | Other | |||||||||||||||||||||||||||||||||||||
Common Stock | Common Stock | Excess of | Comprehensive | Retained | Common Stock | Common Stock | Excess of | Comprehensive | Retained | |||||||||||||||||||||||||||||||||||
| Shares |
| Amount | Shares | Amount | Par Value | Income (Loss) |
| Earnings | Total | ||||||||||||||||||||||||||||||||||
Balance, September 26, 2020 | 14,212,360 |
| $ | 710,618 | 6,047,416 | $ | 302,371 | $ | 12,311,249 | $ | (10,251,296) | $ | 816,258,015 | $ | 819,330,957 | |||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 53,824,087 | 53,824,087 | ||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of income tax | — | — | — | — | — | 2,088,738 | — | 2,088,738 | ||||||||||||||||||||||||||||||||||||
Cash dividends | — | — | — | — | — | — | (3,252,151) | (3,252,151) | ||||||||||||||||||||||||||||||||||||
Common stock conversions | 8,175 | 409 | (8,175) | (409) | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Balance, December 26, 2020 | 14,220,535 | $ | 711,027 | 6,039,241 | $ | 301,962 | $ | 12,311,249 | $ | (8,162,558) | $ | 866,829,951 | $ | 871,991,631 | ||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 52,188,993 | 52,188,993 | ||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of income tax | — | — | — | — | — | 5,105,876 | — | 5,105,876 | ||||||||||||||||||||||||||||||||||||
Cash dividends | — | — | — | — | — | — | (3,252,276) | (3,252,276) | ||||||||||||||||||||||||||||||||||||
Stock repurchases, at cost | — | — | (1,265,400) | (63,270) | (12,311,249) | — | (67,624,069) | (79,998,588) | ||||||||||||||||||||||||||||||||||||
Common stock conversions | 32,750 | 1,638 | (32,750) | (1,638) | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Balance, March 27, 2021 | 14,253,285 | $ | 712,665 | 4,741,091 | $ | 237,054 | $ | — | $ | (3,056,682) | $ | 848,142,599 | $ | 846,035,636 | ||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 71,974,492 | 71,974,492 | ||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of income tax | — | — | — | — | — | (654,315) | — | (654,315) | ||||||||||||||||||||||||||||||||||||
Cash dividends | — | — | — | — | — | — | (3,062,957) | (3,062,957) | ||||||||||||||||||||||||||||||||||||
Stock repurchases, at cost | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Common stock conversions | 7,000 | 350 | (7,000) | (350) | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Balance, June 26, 2021 | 14,260,285 | $ | 713,015 | 4,734,091 | $ | 236,704 | $ | — | $ | (3,710,997) | $ | 917,054,134 | $ | 914,292,856 | ||||||||||||||||||||||||||||||
| Shares |
| Amount | Shares | Amount | Par Value | Income (Loss) |
| Earnings | Total | ||||||||||||||||||||||||||||||||||
Balance, September 25, 2021 | 14,271,335 |
| $ | 713,567 | 4,723,041 | $ | 236,152 | $ | — | $ | (3,426,140) | $ | 985,734,959 | $ | 983,258,538 | 14,271,335 |
| $ | 713,567 | 4,723,041 | $ | 236,152 | $ | — | $ | (3,426,140) | $ | 985,734,959 | $ | 983,258,538 | ||||||||||||||
Net income | — | — | — | — | — | — | 66,189,018 | 66,189,018 | — | — | — | — | — | — | 66,189,018 | 66,189,018 | ||||||||||||||||||||||||||||
Other comprehensive income, net of income tax | — | — | — | — | — | 1,410,887 | — | 1,410,887 | — | — | — | — | — | 1,410,887 | — | 1,410,887 | ||||||||||||||||||||||||||||
Cash dividends | — | — | — | — | — | — | (3,063,227) | (3,063,227) | — | — | — | — | — | — | (3,063,227) | (3,063,227) | ||||||||||||||||||||||||||||
Common stock conversions | 33,300 | 1,665 | (33,300) | (1,665) | — | — | — | — | 33,300 | 1,665 | (33,300) | (1,665) | — | — | — | — | ||||||||||||||||||||||||||||
Balance, December 25, 2021 | 14,304,635 | $ | 715,232 | 4,689,741 | $ | 234,487 | $ | — | $ | (2,015,253) | $ | 1,048,860,750 | $ | 1,047,795,216 | 14,304,635 | $ | 715,232 | 4,689,741 | $ | 234,487 | $ | — | $ | (2,015,253) | $ | 1,048,860,750 | $ | 1,047,795,216 | ||||||||||||||||
Net income | — | — | — | — | — | — | 68,641,347 | 68,641,347 | — | — | — | — | — | — | 68,641,347 | 68,641,347 | ||||||||||||||||||||||||||||
Other comprehensive income, net of income tax | — | — | — | — | — | 7,478,413 | — | 7,478,413 | — | — | — | — | — | 7,478,413 | — | 7,478,413 | ||||||||||||||||||||||||||||
Cash dividends | — | — | — | — | — | — | (3,063,727) | (3,063,727) | — | — | — | — | — | — | (3,063,727) | (3,063,727) | ||||||||||||||||||||||||||||
Common stock conversions | 20,600 | 1,030 | (20,600) | (1,030) | — | — | — | — | 20,600 | 1,030 | (20,600) | (1,030) | — | — | — | — | ||||||||||||||||||||||||||||
Balance, March 26, 2022 | 14,325,235 | $ | 716,262 | 4,669,141 | $ | 233,457 | $ | — | $ | 5,463,160 | $ | 1,114,438,370 | $ | 1,120,851,249 | 14,325,235 | $ | 716,262 | 4,669,141 | $ | 233,457 | $ | — | $ | 5,463,160 | $ | 1,114,438,370 | $ | 1,120,851,249 | ||||||||||||||||
Balance, September 24, 2022 | 14,377,575 |
| $ | 718,879 | 4,616,801 | $ | 230,840 | $ | — | $ | 12,406,551 | $ | 1,246,238,155 | $ | 1,259,594,425 | |||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 67,762,908 | 67,762,908 | — | — | — | — | — | — | 69,371,481 | 69,371,481 | ||||||||||||||||||||||||||||
Other comprehensive income, net of income tax | — | — | — | — | — | 3,281,122 | — | 3,281,122 | ||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of income tax | — | — | — | — | — | (1,150,507) | — | (1,150,507) | ||||||||||||||||||||||||||||||||||||
Cash dividends | — | — | — | — | — | — | (3,064,036) | (3,064,036) | — | — | — | — | — | — | (3,064,821) | (3,064,821) | ||||||||||||||||||||||||||||
Common stock conversions | 47,175 | 2,359 | (47,175) | (2,359) | — | — | — | — | 9,125 | 456 | (9,125) | (456) | — | — | — | — | ||||||||||||||||||||||||||||
Balance, June 25, 2022 | 14,372,410 | $ | 718,621 | 4,621,966 | $ | 231,098 | $ | — | $ | 8,744,282 | $ | 1,179,137,242 | $ | 1,188,831,243 | ||||||||||||||||||||||||||||||
Balance, December 24, 2022 | 14,386,700 | $ | 719,335 | 4,607,676 | $ | 230,384 | $ | — | $ | 11,256,044 | $ | 1,312,544,815 | $ | 1,324,750,578 | ||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 40,539,805 | 40,539,805 | ||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of income tax | — | — | — | — | — | (2,019,226) | — | (2,019,226) | ||||||||||||||||||||||||||||||||||||
Cash dividends | — | — | — | — | — | — | (3,064,960) | (3,064,960) | ||||||||||||||||||||||||||||||||||||
Common stock conversions | 225 | 11 | (225) | (11) | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Balance, March 25, 2023 | 14,386,925 | $ | 719,346 | 4,607,451 | $ | 230,373 | $ | — | $ | 9,236,818 | $ | 1,350,019,660 | $ | 1,360,206,197 | ||||||||||||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
| |||||||||||
Nine Months Ended | Six Months Ended | |||||||||||
| June 25, | June 26, |
| March 25, | March 26, | |||||||
2022 | 2021 | 2023 | 2022 | |||||||||
Cash Flows from Operating Activities: | ||||||||||||
Net income | $ | 202,593,273 | $ | 177,987,573 | $ | 109,911,286 | $ | 134,830,364 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization expense | 88,523,700 | 90,909,221 | 57,969,652 | 59,264,873 | ||||||||
Non cash operating lease cost | 4,967,055 | 5,999,943 | 3,841,608 | 3,493,003 | ||||||||
Gain from sale or disposal of assets | (1,235,886) | (3,644,501) | (1,377,302) | (1,209,226) | ||||||||
Loss on early extinguishment of debt | — | 1,082,633 | ||||||||||
Receipt of advance payments on purchases contracts | 2,106,709 | 1,531,731 | 1,582,490 | 1,147,709 | ||||||||
Recognition of advance payments on purchases contracts | (2,239,005) | (2,203,915) | (1,430,226) | (1,494,340) | ||||||||
Deferred income taxes | (1,395,000) | (1,204,000) | (2,842,000) | (1,678,000) | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
Receivables | (4,284,846) | (8,817,290) | 312,669 | (2,928,641) | ||||||||
Inventory | (28,616,791) | (13,676,873) | (16,302,309) | (7,937,800) | ||||||||
Other assets | (2,227,902) | 596,821 | (19,145,618) | (8,462,044) | ||||||||
Operating lease liabilities | (5,251,398) | (6,282,778) | (3,838,850) | (3,682,564) | ||||||||
Accounts payable and accrued expenses | 8,662,244 | (28,355,258) | (34,267,784) | (15,861,984) | ||||||||
Net Cash Provided by Operating Activities | 261,602,153 | 213,923,307 | 94,413,616 | 155,481,350 | ||||||||
Cash Flows from Investing Activities: | ||||||||||||
Purchase of short term investments | (110,210,267) | (295,000,000) | — | (110,007,106) | ||||||||
Proceeds from sales of property and equipment | 1,610,401 | 6,508,215 | 1,766,849 | 1,509,285 | ||||||||
Capital expenditures | (73,168,922) | (107,952,929) | (91,352,345) | (34,096,602) | ||||||||
Net Cash Used by Investing Activities | (181,768,788) | (396,444,714) | (89,585,496) | (142,594,423) | ||||||||
Cash Flows from Financing Activities: | ||||||||||||
Proceeds from short-term borrowings | — | 653,623,780 | ||||||||||
Payments on short-term borrowings | — | (692,507,850) | ||||||||||
Proceeds from issuance of bonds | — | 350,000,000 | ||||||||||
Debt issuance costs | — | (5,239,937) | ||||||||||
Principal payments on long-term borrowings | (14,908,144) | (16,222,945) | (15,593,180) | (11,449,032) | ||||||||
Stock repurchases | — | (79,998,588) | ||||||||||
Dividends paid | (9,190,990) | (9,567,385) | (6,129,781) | (6,126,954) | ||||||||
Net Cash (Used) Provided by Financing Activities | (24,099,134) | 200,087,075 | ||||||||||
Net Increase in Cash and Cash Equivalents | 55,734,231 | 17,565,668 | ||||||||||
Net Cash Used by Financing Activities | (21,722,961) | (17,575,986) | ||||||||||
Net Decrease in Cash and Cash Equivalents | (16,894,841) | (4,689,059) | ||||||||||
Cash and cash equivalents at beginning of period | 70,313,350 | 6,903,955 | 267,198,517 | 70,313,350 | ||||||||
Cash and Cash Equivalents at End of Period | $ | 126,047,581 | $ | 24,469,623 | $ | 250,303,676 | $ | 65,624,291 | ||||
See notes to unaudited condensed consolidated financial statements.
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED INTERIM FINANCIAL STATEMENTS
Three Months and NineSix Months Ended JuneMarch 25, 20222023 and JuneMarch 26, 20212022
A. BASIS OF PREPARATION
In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the Company’s financial position as of JuneMarch 25, 2022,2023 and the results of operations and changes in stockholders’ equity for the three-month and nine-monthsix-month periods ended JuneMarch 25, 20222023 and JuneMarch 26, 2021,2022, and cash flows of Ingles Markets, Incorporated, a North Carolina corporation (“Ingles”, the “Company”, “we”, “us”, or “our”), for the ninesix months ended JuneMarch 25, 20222023 and JuneMarch 26, 2021.2022. The adjustments made are of a normal recurring nature. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. It is suggested that these unaudited interim financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended September 25, 2021,24, 2022, filed by the Company under the Securities Exchange Act of 1934, on November 24, 2021.23, 2022.
The results of operations for the three-month and nine-monthsix-month periods ended JuneMarch 25, 20222023 are not necessarily indicative of the results to be expected for the full fiscal year.
B. NEW ACCOUNTING PRONOUNCEMENTS
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting in response to the risk of cessation of the London Interbank Offered Rate (“LIBOR”). This amendment provides for optional expedients and exceptions for applying generally accepted accounting principles to contracts and hedging relationships that are affected by LIBOR and other reference rates. The ASU generally allows for hedge accounting to continue if the hedge was highly effective or met other standards prior to reference rate reform. Entities are permitted to apply the amendments to all contracts, cash flow and net investment hedge relationships that exist as of March 12, 2020. The relief provided in this ASU is only available for a limited time, generallyhas been extended through December 31, 2022.2024. The Company’s debt agreements and interest rate swaps that utilize LIBOR have not yet discontinued the use of LIBOR and, therefore, this ASU is not yet effective for us. To the extent our debt and interest rate swap arrangements change to another accepted rate within the timeline provided by this ASU, we will utilize the relief in this ASU to continue hedge accounting.
C. SHORT TERM INVESTMENTS
TheFrom time to time, the Company purchases financial products that can be readily converted into cash, and the Company accounts for such financial products as short-term investments. The financial products include money market funds, bonds and mutual funds. The carrying values of the Company’s short-term investments approximate fair value because of their liquidity.
D. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Receivables are presented net of an allowance for doubtful accounts of $602,000$120,060 at JuneMarch 25, 20222023 and $157,000$382,657 at September 25, 2021.24, 2022.
E. INCOME TAXES
The Company’s effective tax rate differs from the federal statutory rate primarily as a result of state income taxes and tax credits.
The Company has unrecognized tax benefits and could incur interest and penalties related to uncertain tax positions. These amounts are insignificant and are not expected to significantly increase or decrease within the next twelve months.
F. ACCRUED EXPENSES AND CURRENT PORTION OF OTHER LONG-TERM LIABILITIES
Accrued expenses and current portion of other long-term liabilities consist of the following:
June 25, | September 25, | March 25, | September 24, | |||||||||
2022 | 2021 | 2023 | 2022 | |||||||||
Property, payroll and other taxes payable | $ | 19,991,186 | $ | 22,621,486 | $ | 14,352,644 | $ | 23,306,546 | ||||
Salaries, wages and bonuses payable | 43,679,662 | 45,890,517 | 39,049,851 | 49,619,593 | ||||||||
Self-insurance liabilities | 13,099,541 | 13,319,556 | 13,028,205 | 13,120,861 | ||||||||
Interest payable | 956,797 | 4,481,104 | 4,647,146 | 4,590,254 | ||||||||
Other | 4,183,067 | 4,115,904 | 4,585,142 | 4,332,648 | ||||||||
$ | 81,910,253 | $ | 90,428,567 | $ | 75,662,988 | $ | 94,969,902 | |||||
Self-insurance liabilities are established for general liability claims, workers’ compensation and employee group medical and dental benefits based on claims filed and estimates of claims incurred but not reported. The Company is currently insured for covered costs in excess of $1.0 million per occurrence for workers’ compensation and for general liability and $450,000$475,000 per covered person for medical care benefits for a policy year. The Company’s self-insurance reserves totaled $31.1 million and $31.0 million and $32.1 million at JuneMarch 25, 20222023 and September 25, 2021,24, 2022, respectively. Of this amount, $13.1$13.0 million iswas accounted for as a current liability and $17.9$18.1 million as a long-term liability, which is inclusive of $4.0$4.2 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable at JuneMarch 25, 2022.2023. At September 25, 2021, $13.324, 2022, the Company’s self-insurance reserves totaled $31.0 million of which $13.2 million was accounted for as a current liability and $18.8$17.8 million as a long-term liability, which is inclusive of $4.2$4.0 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable.
Employee insurance expense, including workers’ compensation and medical care benefits, net of employee contributions, totaled $7.9$8.1 million and $7.8$7.0 million for the three-month periods ended JuneMarch 25, 20222023 and JuneMarch 26, 2021,2022, respectively. For both the nine-monthsix-month periods ended JuneMarch 25, 20222023 and JuneMarch 26, 2021,2022, employee insurance expense, net of employee contributions totaled $28.2 million.$19.0 million and $20.3 million, respectively.
The Company’s fuel operations containuse underground tanks for the storage of gasoline and diesel fuel. The Company reviewed FASB Accounting Standards Codification Topic 410 (“FASB ASC 410”) and determined we have a legal obligation to remove tanks at a pointvarious points in the future and accordingly determined we have met the requirements of an asset retirement obligation. The Company followed the FASB ASC 410 model for determining the asset retirement cost and asset retirement obligation. The amounts recorded arewere immaterial for each fuel center as well as in the aggregate at JuneMarch 25, 20222023 and September 25, 2021.24, 2022.
G. LONG-TERM DEBT
In June 2021, the Company issued at par $350.0 million aggregate principal amount of 4.00% senior notes due in 2031 (the “Notes”).
The Company may redeem all or a portion of the Notes at any time at the following redemption prices (expressed as percentages of the principal amount), if redeemed during the 12-month period beginning June 15 of the years indicated below:
Year | |
2026 | 102.000% |
2027 | 101.333% |
2028 | 100.667% |
2029 and thereafter | 100.000% |
The Company had a $175.0 million line of credit that was scheduled to mature in September 2022. In June 2021, the Company replaced that line by entering intohas a $150.0 million line of credit (the “Line”) that matures in June 2026. The Line provides the Company with various interest rate options based on the prime rate, the Federal Funds Rate, or LIBOR. The Line allows the Company to issue up to $10.0 million in letters of credit, of which none were issued at JuneMarch 25, 2022.2023. The Company is not required to maintain compensating balances in connection with the Line. At JuneMarch 25, 2022,2023, the Company had 0no borrowings outstanding under the Line.
In December 2010, the Company completed the funding of $99.7 million of bonds (the “Bonds”) for construction of new warehouse and distribution space adjacent to its existing space in Buncombe County, North Carolina (the “Project”). The final maturity date of the Bonds is January 1, 2036.
Under a Continuing Covenant and Collateral Agency Agreement (the “Covenant Agreement”) between certain financial institutions and the Company, the financial institutions would hold the Bonds until December 2029, subject to certain events. Mandatory redemption of the Bonds by the Company in the annual amount of $4.5 million began on January 1, 2014. The outstanding balance of the Bonds was $59.0$54.4 million as of JuneMarch 25, 2022.2023. The Company may redeem the Bonds without penalty or premium at any time prior to December 17, 2029. The Covenant Agreement was amended during the quarter ended December 25, 2021, to extend the holding period and reduce the interest rate on the Bonds.
Interest earned by bondholders on the Bonds is exempt from Federal and North Carolina income taxation. The interest rate on the Bonds is equal to one-month LIBOR (adjusted monthly) plus a credit spread, adjusted to reflect the income tax exemption.
The Company’s obligation to repay the Bonds is collateralized by the Project. The Covenant Agreement incorporates substantially all financial covenants included in the Line.
In September 2017, the Company refinanced approximately $60 million of secured borrowing obligations with a LIBOR-based amortizing floating rate loan secured by real estate, maturingwhich matures in October 2027. The Company has an interest rate swap agreement for a current notional amount of $32.0$27.5 million at a fixed rate of 3.92%. Under this agreement, the Company pays monthly the fixed rate of 3.92% and receives the one-month LIBOR plus 1.65%. The interest rate swap effectively hedges floating rate debt in the same amount as the current notional amount of the interest swap. Both the floating rate debt and the interest rate swap have monthly principal amortization of $0.5 million and mature October 1, 2027.
In December 2019, the Company closed a $155 million LIBOR-based amortizing floating rate loan secured by real estate, maturingwhich matures in January 2030. The Company has an interest rate swap agreement for a current notional amount of $134.3$128.5 million at a fixed rate of 2.95%. Under this agreement, the Company pays monthly the fixed rate of 2.95% and receives the one-month LIBOR plus 1.50%. The interest rate swap effectively hedges floating rate debt in the same amount as the current notional amount of the interest swap. Both the floating rate debt and the interest rate swap have monthly principal amortization of $0.65 million and mature in fiscal year 2030.
The Company recognizes differences between the variable rate interest payments and the fixed interest rate settlements with the swap counterparties as an adjustment to interest expense each period over the life of the swaps. The Company has designated the swaps as cash flow hedges and records the changes in the estimated fair value of the swaps to other comprehensive income each period. For the three-three and nine-month periodssix months ended JuneMarch 25, 2022,2023, the Company recorded $3.3$2.0 million and $12.2$3.2 million of other comprehensive income,loss, respectively, net of income taxes, respectively, in its Consolidated Statements of Comprehensive Income. Unrealized gains of $11.6$12.2 million are recordedwere included as an asset at fair value in the line “Other Assets” on the Consolidated Balance Sheet as of JuneMarch 25, 2022.2023. For the three- and nine-monthsix-month periods ended JuneMarch 26, 2021,2022, the Company recorded $0.7$7.5 million of other comprehensive loss and $6.5$8.9 million of other comprehensive income, respectively, net of income taxes, respectively, in its Consolidated Statements of Comprehensive Income. Unrealized losses of $4.9 million are recorded as a liability at fair value in the line “Other Long Term Liabilities” on the Consolidated Balance Sheet as of June 26, 2021.
The Company’s long-term debt agreements generally contain provisions that under certain circumstances would permit lending institutions to terminate or withdraw their respective extensions of credit to the Company. Included among the triggering factors permitting the termination or withdrawal of the Line to the Company are certain events of default, including both monetary and non-monetary defaults, the initiation of bankruptcy or insolvency proceedings, and the failure of the Company to meet certain financial covenants designated in its respective loan documents. The Company was in compliance with all financial covenants at JuneMarch 25, 2022.2023.
The Company’s long-term debt agreements generally have cross-default provisions which could result in the acceleration of payments due under all long-term debt agreements in the event of default under any one instrument.
At JuneMarch 25, 2022,2023, property and equipment with an undepreciated cost of approximately $271.5$257.6 million waswere pledged as collateral for long-term debt. Long-term debt and Line agreements contain various restrictive covenants requiring, among other things, minimum levels of net worth and maintenance of certain financial ratios. At JuneMarch 25, 2022,2023, the Company had excess net worth totaling $340.0$421.3 million calculated under covenants in the Notes, the Bonds, the Loan,various floating rate loans (the “Loans”), and the Line. This amount is available to pay dividends; however, certain loan agreements containing provisions outlining minimum tangible net worth requirements restrict the ability of the Company to pay cash dividends in excess of the current annual per share dividends paid on the Company’s Class A Common Stock and Class B Common Stock. Further, the Company is prevented from paying cash dividends at any time that it is in default under the indenture governing the Notes. In addition, the terms of the indenture may restrict the ability of the Company to pay additional cash dividends based on certain financial parameters.
H. DIVIDENDS
The Company paid cash dividends of $0.165 for each share of Class A Common Stock and $0.15 for each share of Class B Common Stock on October 14, 2021 to stockholders of record on October 7, 2021.
The Company paid cash dividends of $0.165 for each share of Class A Common Stock and $0.15 for each share of Class B Common Stock on January 13, 2022 to stockholders of record on JanuaryOctober 6, 2022.
The Company paid cash dividends of $0.165 for each share of Class A Common Stock and $0.15 for each share of Class B Common Stock on April 14, 2022January 12, 2023 to stockholders of record on April 7, 2022.January 6, 2023.
For additional information regarding the dividend rights of the Class A Common Stock and Class B Common Stock, please see Note 8, “Stockholders’ Equity” to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K filed by the Company under the Securities Exchange Act of 1934, on November 24, 2021.23, 2022, as well as Note I, Earnings Per Common Share below.
I. EARNINGS PER COMMON SHARE
The Company has 2two classes of common stock: Class A Common Stock, which is publicly traded, and Class B Common Stock, which has no public market. The Class B Common Stock has restrictions on transfer; however, each share is convertible into one share of Class A Common Stock at any time. Each share of Class A Common Stock has 1one vote per share and each share of Class B Common Stock has 10ten votes per share. Each share of Class A Common Stock is entitled to receive cash dividends equal to 110% of any cash dividend paid on Class B Common Stock.
The Company calculates earnings per share using the two-class method in accordance with FASB ASC Topic 260.
The two-class method of computing basic earnings per share for each period reflects the cash dividends declared per share for each class of stock, plus allocated undistributed earnings per share computed using the participation percentage which reflects the dividend rights of each class of stock. Diluted earnings per share is calculated assuming the conversion of all shares of Class B Common Stock to shares of Class A Common Stock on a share-for-share basis. The tables below reconcile the numerators and denominators of basic and diluted earnings per share for current and prior periods.
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||
June 25, 2022 | June 25, 2022 | March 25, 2023 | March 25, 2023 | |||||||||||||||||||||
Class A | Class B | Class A | Class B | Class A | Class B | Class A | Class B | |||||||||||||||||
Numerator: Allocated net income | ||||||||||||||||||||||||
Net income allocated, basic | $ | 52,356,721 | $ | 15,406,187 | $ | 156,187,339 | $ | 46,405,934 | $ | 31,398,357 | $ | 9,141,448 | $ | 85,111,213 | $ | 24,800,073 | ||||||||
Conversion of Class B to Class A shares | 15,406,187 | — | 46,405,934 | — | 9,141,448 | — | 24,800,073 | — | ||||||||||||||||
Net income allocated, diluted | $ | 67,762,908 | $ | 15,406,187 | $ | 202,593,273 | $ | 46,405,934 | $ | 40,539,805 | $ | 9,141,448 | $ | 109,911,286 | $ | 24,800,073 | ||||||||
Denominator: Weighted average shares outstanding | ||||||||||||||||||||||||
Weighted average shares outstanding, basic | 14,350,835 | 4,643,541 | 14,316,342 | 4,678,034 | 14,386,862 | 4,607,514 | 14,384,087 | 4,610,289 | ||||||||||||||||
Conversion of Class B to Class A shares | 4,643,541 | — | 4,678,034 | — | 4,607,514 | — | 4,610,289 | — | ||||||||||||||||
Weighted average shares outstanding, diluted | 18,994,376 | 4,643,541 | 18,994,376 | 4,678,034 | 18,994,376 | 4,607,514 | 18,994,376 | 4,610,289 | ||||||||||||||||
Earnings per share | ||||||||||||||||||||||||
Basic | $ | 3.65 | $ | 3.32 | $ | 10.91 | $ | 9.92 | $ | 2.18 | $ | 1.98 | $ | 5.92 | $ | 5.38 | ||||||||
Diluted | $ | 3.57 | $ | 3.32 | $ | 10.67 | $ | 9.92 | $ | 2.13 | $ | 1.98 | $ | 5.79 | $ | 5.38 | ||||||||
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||
June 26, 2021 | June 26, 2021 | March 26, 2022 | March 26, 2022 | |||||||||||||||||||||
Class A | Class B | Class A | Class B | Class A | Class B | Class A | Class B | |||||||||||||||||
Numerator: Allocated net income | ||||||||||||||||||||||||
Net income allocated, basic | $ | 55,276,248 | $ | 16,698,244 | $ | 131,185,114 | $ | 46,802,459 | $ | 52,934,311 | $ | 15,707,036 | $ | 103,831,190 | $ | 30,999,174 | ||||||||
Conversion of Class B to Class A shares | 16,698,244 | — | 46,802,459 | — | 15,707,036 | — | 30,999,174 | — | ||||||||||||||||
Net income allocated, diluted | $ | 71,974,492 | $ | 16,698,244 | $ | 177,987,573 | $ | 46,802,459 | $ | 68,641,347 | $ | 15,707,036 | $ | 134,830,364 | $ | 30,999,174 | ||||||||
Denominator: Weighted average shares outstanding | ||||||||||||||||||||||||
Weighted average shares outstanding, basic | 14,257,035 | 4,737,341 | 14,234,599 | 5,584,837 | 14,320,981 | 4,673,395 | 14,299,096 | 4,695,280 | ||||||||||||||||
Conversion of Class B to Class A shares | 4,737,341 | — | 5,584,837 | — | 4,673,395 | — | 4,695,280 | — | ||||||||||||||||
Weighted average shares outstanding, diluted | 18,994,376 | 4,737,341 | 19,819,436 | 5,584,837 | 18,994,376 | 4,673,395 | 18,994,376 | 4,695,280 | ||||||||||||||||
Earnings per share | ||||||||||||||||||||||||
Basic | $ | 3.88 | $ | 3.52 | $ | 9.22 | $ | 8.38 | $ | 3.70 | $ | 3.36 | $ | 7.26 | $ | 6.60 | ||||||||
Diluted | $ | 3.79 | $ | 3.52 | $ | 8.98 | $ | 8.38 | $ | 3.61 | $ | 3.36 | $ | 7.10 | $ | 6.60 | ||||||||
J. LEASES
Leases as Lessee
The Company conducts part of its retail operations from leased facilities. The initial terms of the leases are generally 20 years. The majority of the leases includesinclude one or more renewal options and providerequire that the Company pay property taxes, utilities, repairs and certain other costs incidental to occupation of the premises. Several leases contain clauses calling forthat require rental payments based on a percentage rentals based uponof gross sales of the supermarket occupying the leased space. Step rent provisions, escalation clauses and lease incentives are taken into account in computing minimum lease payments.
Operating lease cost for all operating leases totaled $2.6$2.7 million for the three months ended JuneMarch 25, 20222023 and $8.2$5.3 million for the ninesix months ended JuneMarch 25, 2022.2023. This amount includesincluded short-term (less than one year) leases, common area expenses, and variable lease costs, all of which are insignificant. Cash paid for lease liabilities in operating activities approximates operating lease cost.
Maturities of operating lease liabilities as of JuneMarch 25, 20222023 were as follows:
Fiscal Year | ||||
Remainder of 2022 | $ | 2,386,798 | ||
2023 | 9,097,692 | |||
Remainder of 2023 | $ | 4,369,583 | ||
2024 | 6,313,393 | 8,030,542 | ||
2025 | 5,512,685 | 7,229,835 | ||
2026 | 4,230,737 | 5,947,887 | ||
2027 | 5,097,637 | |||
Thereafter | 24,152,866 | 22,704,055 | ||
Total lease payments | $ | 51,694,171 | $ | 53,379,539 |
Less amount representing interest | 11,335,893 | 11,234,963 | ||
Present value of lease liabilities | $ | 40,358,278 | $ | 42,144,576 |
On the Condensed Consolidated Balance Sheets, lease extensions exercised less leased properties purchased during fiscal year 2022 increased the line items “Operating lease right of use assets” and “Noncurrent operating lease liabilities” by $3.1 million each during the nine months ended June 25, 2022. The weighted average remaining lease term for the Company’s operating leases is 13.512.7 years. The weighted average discount rate used to determine lease liability balances as of JuneMarch 25, 2022 is2023 was 3.51%, based on the most recent Company financings collateralized by store properties.our incremental borrowing rate.
Leases as Lessor
At JuneMarch 25, 2022,2023, the Company owned and operated 8492 shopping centers in conjunction with its supermarket operations. The Company leases to others a portion of its shopping center properties. The leases are non-cancelable operating lease agreements for periodsterms ranging up to 20 years.
Rental income is included in the line item “Net sales” on the Consolidated Statements of Income. Depreciation on owned properties leased to others and other shopping center expenses are included in the line item “Cost of goods sold” on the Consolidated Statements of Income.
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||
June 25, 2022 | June 25, 2022 | March 25, 2023 | March 25, 2023 | |||||||
Rents earned on owned and subleased properties: | ||||||||||
Base rentals | $ | 5,037,443 | $ | 14,707,904 | $ | 5,825,202 | $ | 11,942,079 | ||
Variable rentals | 67,892 | 203,677 | 41,723 | 83,445 | ||||||
Total | 5,105,335 | 14,911,581 | 5,866,925 | 12,025,524 | ||||||
Depreciation on owned properties leased to others | (1,463,937) | (4,391,812) | (1,754,831) | (3,334,553) | ||||||
Other shopping center expenses | (658,322) | (1,976,474) | (910,994) | (1,537,965) | ||||||
Total | $ | 2,983,076 | $ | 8,543,295 | $ | 3,201,100 | $ | 7,153,006 | ||
Future minimum operating lease receipts at JuneMarch 25, 2022 are2023 were as follows:
Fiscal Year | ||||
Remainder of 2022 | $ | 3,852,303 | ||
2023 | 14,376,562 | |||
Remainder of 2023 | $ | 9,120,094 | ||
2024 | 13,190,842 | 16,911,437 | ||
2025 | 11,831,487 | 15,097,395 | ||
2026 | 8,919,932 | 11,617,994 | ||
2027 | 8,847,337 | |||
Thereafter | 34,465,715 | 31,848,431 | ||
Total minimum future rental income | $ | 86,636,841 | $ | 93,442,688 |
K. SEGMENT INFORMATION
The Company operates 1one primary business segment, retail grocery sales. “Other” includes our remaining operations -– fluid dairy and shopping center rentals. Information about the Company’s operations by lines of business (amounts in thousands) is as follows:
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||
June 25, | June 26, | June 25, | June 26, | March 25, | March 26, | March 25, | March 26, | |||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||
Revenues from unaffiliated customers: | ||||||||||||||||||||||||
Grocery | $ | 473,114 | $ | 433,395 | $ | 1,443,699 | $ | 1,302,734 | $ | 492,553 | $ | 482,179 | $ | 1,033,411 | $ | 970,585 | ||||||||
Non-foods | 303,790 | 291,596 | 897,881 | 840,083 | 308,684 | 289,419 | 636,039 | 594,091 | ||||||||||||||||
Perishables | 360,660 | 348,284 | 1,080,661 | 990,040 | 348,204 | 355,651 | 722,392 | 720,001 | ||||||||||||||||
Gasoline | 265,569 | 164,249 | 656,594 | 405,397 | ||||||||||||||||||||
Fuel | 175,551 | 200,192 | 368,023 | 391,025 | ||||||||||||||||||||
Total Retail | $ | 1,403,133 | $ | 1,237,524 | $ | 4,078,835 | $ | 3,538,254 | $ | 1,324,992 | $ | 1,327,441 | $ | 2,759,865 | $ | 2,675,702 | ||||||||
Other | 55,034 | 39,941 | 147,980 | 114,209 | 55,612 | 49,678 | 114,053 | 92,946 | ||||||||||||||||
Total revenues from unaffiliated customers | $ | 1,458,167 | $ | 1,277,465 | $ | 4,226,815 | $ | 3,652,463 | $ | 1,380,604 | $ | 1,377,119 | $ | 2,873,918 | $ | 2,768,648 | ||||||||
Income from operations: | ||||||||||||||||||||||||
Retail | $ | 87,512 | $ | 94,466 | $ | 261,675 | $ | 233,630 | $ | 50,786 | $ | 88,663 | $ | 138,701 | $ | 174,162 | ||||||||
Other | 7,051 | 6,119 | 18,380 | 17,709 | 6,861 | 6,426 | 14,702 | 11,329 | ||||||||||||||||
Total income from operations | $ | 94,563 | $ | 100,585 | $ | 280,055 | $ | 251,339 | $ | 57,647 | $ | 95,089 | $ | 153,403 | $ | 185,491 | ||||||||
June 25, | September 25, | March 25, | September 24, | |||||||||
2022 | 2021 | 2023 | 2022 | |||||||||
Assets: | ||||||||||||
Retail | $ | 1,985,129 | $ | 1,794,160 | $ | 2,075,213 | $ | 2,042,730 | ||||
Other | 233,537 | 226,762 | 269,038 | 255,880 | ||||||||
Elimination of intercompany receivable | (3,270) | (2,578) | (3,186) | (3,099) | ||||||||
Total assets | $ | 2,215,396 | $ | 2,018,344 | $ | 2,341,065 | $ | 2,295,511 | ||||
The grocery“Grocery” category includes grocery, dairy, and frozen foods.
The non-foods“Non-foods” category includes alcoholic beverages, tobacco, pharmacy, and health/beauty/cosmetic products.
The perishables“Perishables” category includes meat, produce, deli and bakery.
For the three-month periods ended June 25, 2022 and June 26, 2021, theThe fluid dairy operation had $12.8 million and $11.1 million in sales respectively to the grocery sales segment. The fluid dairy operation had $38.5 million and $34.8 million in sales to the retail grocery segment for the nine-month periods ended June 25, 2022 and June 26, 2021, respectively. These sales have been eliminated in consolidation and are excluded from the amounts in the table above.
L. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of these instruments.
The fair value of the Company’s debt and interest rate swaps are estimated using valuation techniques under the accounting guidance related to fair value measurements based on observable and unobservable inputs. Observable inputs reflect readily available data from independent sources, while unobservable inputs reflect the Company’s market assumptions. These inputs are classified into the following hierarchy:
Level 1 Inputs – | Quoted prices for identical assets or liabilities in active markets. |
Level 2 Inputs – | Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. |
Level 3 Inputs – | Pricing inputs are unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value require significant management judgment or estimation. |
The carrying amount and fair value of the Company’s debt, interest rate swaps, and non-qualified retirement plan assets at JuneMarch 25, 20222023 were as follows (in thousands):
Carrying |
| Fair Value | Carrying |
| Fair Value | |||||||||||
Amount | Fair Value | Measurements | Amount | Fair Value | Measurements | |||||||||||
Senior Notes | $ | 350,000 | $ | 308,000 | Level 2 | |||||||||||
Facility Bonds | 58,970 | 58,970 | Level 2 | |||||||||||||
Senior Notes due 2031 | $ | 350,000 | $ | 301,875 | Level 2 | |||||||||||
Facility Bonds due 2036 | 54,440 | 54,440 | Level 2 | |||||||||||||
Secured notes payable and other | 166,210 | 166,156 | Level 2 | 152,250 | 152,250 | Level 2 | ||||||||||
Interest rate swap derivative contracts asset | (11,573) | (11,573) | Level 2 | 12,227 | 12,227 | Level 2 | ||||||||||
Non-qualified retirement plan assets | 17,594 | 17,594 | Level 2 | 18,929 | 18,929 | Level 2 | ||||||||||
The fair values for Level 2 measurements were determined primarily using market yields and taking into consideration the underlying terms of the instrument.
M. COMMITMENTS AND CONTINGENCIES
Various legal proceedings and claims arising in the ordinary course of business are pending against the Company. In the opinion of management, the ultimate liability, if any, from all pending legal proceedings and claims is not expected to materially affect the Company’s financial position, the results of its operations, or its cash flows.
N. RELATED PARTY TRANSACTIONS
The Company will from time to time make short-term non-interest bearing loans to the Company’s Investment/Profit Sharing Plan to allow the plan to meet distribution obligations during a time when the plan was prohibited from selling shares of the Company’s Class A Common Stock. During the ninethree months ended JuneMarch 25, 2022,2023, there were no such loans were made, repaid or outstanding.
During the three months ended December 24, 2022, a limited liability corporation having Robert P. Ingle II, the Company’s Chairman of the Board, as one of its principals, purchased a shopping center from an unrelated party at which the Company has a long-term lease in place. The Company’s lease was in place prior to such purchase, and the terms of the lease have not changed since it was originally negotiated.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Ingles, a leading supermarket chain in the Southeast, operates 198 supermarkets in North Carolina (75), Georgia (65), South Carolina (35), Tennessee (21), Virginia (1) and Alabama (1). The Company locates its supermarkets primarily in suburban areas, small towns and rural communities. Ingles supermarkets offer customers a wide variety of nationally advertised food products, including grocery, meat and dairy products, produce, frozen foods and other perishables and non-food products. Non-food products include fuel centers, pharmacies, health/beauty/cosmetic products and general merchandise, as well as quality private label items. In addition, the Company focuses on selling high-growth, high-margin products to its customers through the development of certified organic products, bakery departments and prepared foods including delicatessen sections. As of June 25, 2022, the Company operated 111 in-store pharmacies and 107 fuel centers.
Coronavirus (COVID-19) Pandemic Impact
The effects of the COVID-19 pandemic, which began in March 2020, have eased considerably over the six months ended March 25, 2023, but the earlier portion of the pandemic substantially impacted supermarket operations, and hassome effects have continued through the ninesix months ended JuneMarch 25, 2022, has impacted supermarket operations, as2023. At the onset of the COVID-19 pandemic, the Company implemented several enhanced cleaning and social distancing protocols designed to keep our customers and our associates safe.safe and has continued to monitor and update its protocols as the pandemic has evolved. Since March 2020, the Company’s stores have experienced increased customer traffic and have experienced occasional product shortages due to supply chain issues. Recently, an extremelyThe currently tight labor market has impacted the Company’s ability to attract and retain qualified store personnel, but these impacts have not materially affected our operations. Finally, as the economy has been recoveringcontinues to recover from the effects of the pandemic, inflation has recently reached levels not seen in decades. Inflation impacts product costs, labor costs and the cost of other goods used by the Company, which could negatively impact our results of operation.
At the present time, we do not know how long and to what extent the ongoing effects of the pandemic and inflation could impact our sales and financial performance.
Critical Accounting Policies and Estimates
Critical accounting policies are those accounting policies that management believes are important to the presentation of the Company’s financial condition and results of operations, and require management’s most difficult, subjective or complex judgments, often as a result of the need to estimate the effect of matters that are inherently uncertain. Estimates are based on historical experience and other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources. Management estimates, by their nature, involve judgments regarding future uncertainties, and actual results may therefore differ materially from these estimates.
Self-Insurance
The Company is self-insured for workers’ compensation and group medical and dental benefits. Risks and uncertainties are associated with self-insurance; however, the Company has limited its exposure by maintaining excess liability coverage of $1.0 million per occurrence for workers’ compensation and for general liability, and $450,000$475,000 per covered person for medical care benefits for a policy year. Self-insurance liabilities are established based on claims filed and estimates of claims incurred but not reported. The estimates are based on data provided by the respective claims administrators. These estimates can fluctuate if historical trends are not predictive of the future. The majority of the Company’s properties are self-insured for casualty losses and business interruption; however, the Company maintains liability coverage is maintained.coverage. At JuneMarch 25, 20222023 the Company’s self-insurance reserves totaled $31.0$31.1 million. This amount iswas inclusive of $4.0$4.2 million of expected self-insurance recoveries from excess cost insurance or other sources that are recorded as a receivable.
Asset Impairments
The Company accounts for the impairment of long-lived assets in accordance with FASB ASC Topic 360. For assets to be held and used, the Company tests for impairment using undiscounted cash flows and calculates the amount of impairment using discounted cash flows. For assets held for sale, impairment is recognized based on the excess of remaining book value over expected recovery value. The recovery value is the fair value as determined by independent quotes or expected sales prices developed by internal associates. Estimates of future cash flows and expected sales prices are judgments based upon the Company’s experience and knowledge of local operations and cash flows that are projected for several years into the future. These estimates can fluctuate significantly due to changes in real estate market conditions, the economic environment, capital spending decisions and inflation. The Company monitors the carrying value of long-lived assets for potential impairment each quarter based on whether any indicators of impairment have occurred. There were no asset impairments during the nine-monthsix-month period ended JuneMarch 25, 2022.2023.
Vendor Allowances
The Company receives funds for a variety of merchandising activities from the many vendors whose products the Company buys for resale in its stores. These incentives and allowances are primarily composed of volume or purchase based incentives, advertising allowances, slotting fees, and promotional discounts. The purpose of these incentives and allowances is generally to help defray the costs incurred by the Company for stocking, advertising, promoting and selling the applicable vendor’s products. These allowances generally relate to short term arrangements with vendors, often relating to a period of one month or less, and are negotiated on a purchase-by-purchase or transaction-by-transaction basis. Whenever practicable,practical, vendor discounts and allowances that relate to buying and merchandising activities are recorded as a component of item cost in inventory and recognized in merchandise costs when the item is sold. Due to the use of the retail method of store inventory and the nature of certain allowances, it is sometimes not practicable to apply allowances to the item cost of inventory. In those instances, the allowances are applied as a reduction of merchandise costs using a rational and systematic methodology, which results in the recognition of these incentives when the inventory related to the vendor consideration received is sold. Vendor allowances applied as a reduction of merchandise costs totaled $25.4$29.8 million and $30.0$26.2 million for the fiscal quarters ended JuneMarch 25, 20222023 and JuneMarch 26, 2021,2022, respectively. For the nine-monthsix-month periods ended JuneMarch 25, 20222023 and JuneMarch 26, 2021,2022, vendor allowances applied as a reduction of merchandise costs totaled $83.5$64.6 million and $88.7$58.0 million, respectively. Vendor advertising allowances that represent a reimbursement of specificallyspecific identifiable incremental costs of advertising the vendor’s specific products are recorded as a reduction to the related expense in the period in which the related expense is incurred. Vendor advertising allowances recorded as a reduction of advertising expense totaled $1.6$1.9 million and $2.0$1.7 million for the fiscal quarters ended JuneMarch 25, 20222023 and JuneMarch 26, 2021,2022, respectively. For the nine-monthsix-month periods ended JuneMarch 25, 20222023 and JuneMarch 26, 2021,2022, vendor advertising allowances recorded as a reduction of advertising expense totaled $5.3$3.9 million and $6.0$3.7 million, respectively. Overall, vendor allowances decreased significantly at the onset of the COVID-19 pandemic as vendors reduced support for promotional activities. Vendor promotional support subsequently increased, but has not returned to pre-pandemic levels.
If vendor advertising allowances were substantially reduced or eliminated, the Company would likely consider other methods of advertising, as well as the volume and frequency of the Company’s product advertising, which could increase or decrease the Company’s expenditures.
Additionally,Similarly, the Company is not able to assess the impact of vendor advertising allowances on creating additional revenue, as such allowances do not directly generate revenue for the Company’s stores.
Results of Operations
Ingles operates on a 52 or 53-week fiscal year ending on the last Saturday in September. There are 13 and 39 weeks of operations included in the UnauditedThe Condensed Consolidated Statements of Income for the three-three and nine-monthsix month periods ended JuneMarch 25, 2023 and March 26, 2022 both include 13 and June 26 2021,weeks of operations, respectively. Comparable store sales are defined as sales by retail stores in operation for five full fiscal quarters. Sales from replacement stores, major remodels and the addition of fuel stations to existing stores are included in the comparable store sales calculation from the date of replacement, completion of the remodel or date of addition of fuel station, respectively. A replacement store is a newly opened store that replaces an existing nearby store that is closed. A major remodel entails substantial
calculation from the date thereof. A replacement store is a newly-opened store that replaces an existing nearby store that has closed. A major remodel entails substantial remodeling of an existing store and includes additional retail square footage. For both the three- and nine-monthsix-month periods ended JuneMarch 25, 20222023, comparable store sales included 198 stores. For the three- and Junesix-month periods ended March 26, 2021,2022, comparable store sales included 196 and 197 stores, respectively.stores.
The following table sets forth, for the periods indicated, selected financial information as a percentage of net sales. For information regarding the various business’ segments, of the business, see Note IK “Segment Information” to the Condensed Consolidated Financial Statements.Statements contained in this Quarterly Report on Form 10-Q.
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||
June 25, | June 26, | June 25, | June 26, | March 25, | March 26, | March 25, | March 26, | |||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Gross profit | 24.1 | % | 26.4 | % | 24.9 | % | 26.3 | % | 23.6 | % | 25.3 | % | 24.3 | % | 25.3 | % | ||||||||
Operating and administrative expenses | 17.6 | % | 18.7 | % | 18.3 | % | 19.5 | % | 19.4 | % | 18.5 | % | 19.0 | % | 18.6 | % | ||||||||
Gain from sale or disposal of assets | — | % | 0.2 | % | — | % | 0.1 | % | — | % | 0.1 | % | — | % | — | % | ||||||||
Income from operations | 6.5 | % | 7.9 | % | 6.6 | % | 6.9 | % | 4.2 | % | 6.9 | % | 5.3 | % | 6.7 | % | ||||||||
Other income, net | 0.1 | % | — | % | 0.1 | % | — | % | 0.1 | % | 0.1 | % | 0.1 | % | 0.1 | % | ||||||||
Interest expense | 0.4 | % | 0.4 | % | 0.4 | % | 0.5 | % | 0.4 | % | 0.4 | % | 0.4 | % | 0.4 | % | ||||||||
Loss on early extinguishment of debt | — | % | 0.1 | % | — | % | — | % | ||||||||||||||||
Income tax expense | 1.6 | % | 1.8 | % | 1.5 | % | 1.5 | % | 1.0 | % | 1.6 | % | 1.2 | % | 1.5 | % | ||||||||
Net income | 4.6 | % | 5.6 | % | 4.8 | % | 4.9 | % | 2.9 | % | 5.0 | % | 3.8 | % | 4.9 | % | ||||||||
Three Months Ended JuneMarch 25, 20222023 Compared to the Three Months Ended JuneMarch 26, 20212022
Net income for the thirdsecond quarter of fiscal 20222023 totaled $67.8$40.5 million, compared with net income of $72.0$68.6 million earned for the thirdsecond quarter of fiscal 2021.2022. The decrease primarily resulted from significant inventory cost increases and higher costs to retain and keep associates.
Net Sales. Net sales increased by $180.7$3.5 million, or 14.2%0.25%, to $1.46$1.381 billion for the three months ended JuneMarch 25, 20222023 compared with $1.28$1.377 billion for the three months ended JuneMarch 26, 2021. Comparing the third quarter of fiscal 2022 with the third quarter of fiscal 2021, gasoline sales dollars and gallons sold were higher due to increased travel and an increase in market prices for fuel.2022. Excluding gasolinefuel sales, total grocery comparable store sales increased 5.7%3.4% over the comparative fiscal quarter. Comparing the third quarters of fiscal years 2022 and 2021 (and excluding gasoline), the number of customer transactions increased 2.3% and the average transaction size increased 3.4%.
Ingles operated 198 stores at Juneboth March 25, 20222023 and JuneMarch 26, 2021. Retail square feet totaled approximately 11.3 million square feet at June 25, 2022 and at June 26, 2021. During the twelve months ended June 25, 2022, the Company opened one store and closed one store.2022.
Sales by product category (in thousands) were as follows:
Three Months Ended | Three Months Ended | |||||||||||
June 25, | June 26, | March 25, | March 26, | |||||||||
2022 | 2021 | 2023 | 2022 | |||||||||
Grocery | $ | 473,114 | $ | 433,395 | $ | 492,553 | $ | 482,179 | ||||
Non-foods | 303,790 | 291,596 | 308,684 | 289,419 | ||||||||
Perishables | 360,660 | 348,284 | 348,204 | 355,651 | ||||||||
Gasoline | 265,569 | 164,249 | ||||||||||
Fuel | 175,551 | 200,192 | ||||||||||
Total retail grocery | $ | 1,403,133 | $ | 1,237,524 | $ | 1,324,992 | $ | 1,327,441 | ||||
The grocery“Grocery” category includes grocery, dairy, and frozen foods.
The non-foods“Non-foods” category includes alcoholic beverages, tobacco, pharmacy, and health/beauty/cosmetic products.
The perishables“Perishables” category includes meat, produce, deli and bakery.
Changes in retail grocery sales for the quarter ended JuneMarch 25, 20222023 are summarized as follows (in thousands):
| |||
Total retail sales for the three months ended June 26, 2021 | $ | 1,237,524 | |
Comparable store sales increase (including gasoline) | 157,218 | ||
Impact of stores opened in fiscal 2021 | 9,480 | ||
Impact of stores closed in fiscal 2021 | (3,438) | ||
Other | 2,349 | ||
Total retail sales for the three months ended June 25, 2022 | $ | 1,403,133 |
| |||
Total retail sales for the three months ended March 26, 2022 | $ | 1,327,441 | |
Comparable store sales decrease (including fuel) | (2,635) | ||
Other | 186 | ||
Total retail sales for the three months ended March 25, 2023 | $ | 1,324,992 |
Gross Profit. Gross profit for the three-month period ended JuneMarch 25, 20222023 totaled $351.9$325.9 million, an increasea decrease of $14.4$22.6 million, or 4.3%6.5%, compared with gross profit of $337.5$348.6 million for the three-month period ended JuneMarch 26, 2021.2022. Gross profit as a percentage of sales was 24.1%23.6% and 26.4%25.3% for the three months ended JuneMarch 25, 2023 and March 26, 2022, respectively. The decrease in gross profit as a percentage of sales resulted primarily from inflation and June 26, 2021, respectively. Retail grocery gross margin,
excluding gasoline, was 44 basis points lower forraw material shortages, which have increased the three months ended June 25, 2022 compared with the three months ended June 26, 2021.cost of products.
Operating and Administrative Expenses. Operating and administrative expenses increased $17.9$14.2 million, or 7.5%5.6%, to $257.3$268.9 million for the three months ended JuneMarch 25, 2022,2023, from $239.4$254.7 million for the three months ended JuneMarch 26, 2021.2022. As a percentage of sales, operating and administrative expenses were 17.7%19.5% and 18.7%18.5% for the JuneMarch 2023 and March 2022 and June 2021 quarters, respectively. Excluding gasolinefuel sales and associated gasolinefuel operating expenses (primarily payroll), operating expenses were 21.4%21.6% of sales for the thirdsecond fiscal quarter of 20222023 compared with 21.3%21.5% for the thirdsecond fiscal quarter of 2021.2022.
A breakdown of the major changes in operating and administrative expenses is as follows:
Increase | Increase | Increase | ||||||||||
Increase | as a % of | (Decrease) | (Decrease) as a | |||||||||
in millions | sales | in millions | % of sales | |||||||||
Salaries and wages | $ | 8.6 | 0.59 | % | $ | 8.8 | 0.64 | % | ||||
Taxes and licenses | $ | 2.4 | 0.18 | % | ||||||||
Repairs and maintenance | $ | 2.0 | 0.13 | % | $ | 2.1 | 0.15 | % | ||||
Professional fees | $ | 1.9 | 0.13 | % | ||||||||
Bank charges | $ | 1.7 | 0.11 | % | ||||||||
Advertising and promotion | $ | (1.8) | (0.13) | % | ||||||||
Salaries and wages increased in dollars due to additionalincreased labor hours required formarket competition, which has increased sales volume as well asthe Company’s cost to attract and retain associates in the Company’s market area.
Taxes and licenses expense increased due to overall increases in wages duesystem improvements that provided us the ability to the competitive labor market.separately account for use tax during invoice processing.
Repairs and maintenance expense increased due to higher refrigerant costs and the cost of other supply items, as well as increased wear and tear on equipment to accommodate sales volume, fuel surcharges and rising costs in refrigerant.volume.
Professional fees increased in conjunction with improvementsAdvertising and promotion costs decreased due to absorbing some of the Company’s information technology platforms.
Bank charges increased as a resultactivity in-house and movement towards lower-cost types of increased sales and higher card usage compared to cash or checks.advertising.
Gain from Sale or Disposal of Assets. During the quarter ended June 25, 2022, the gain from the sale or disposal of assets was insignificant. Gain from the sale or disposal of assets totaled $2.5$0.6 million duringfor the three months ended JuneMarch 25, 2023. Gain from the sale or disposal of assets totaled $1.3 million for the three months ended March 26, 2021,2022, primarily from the sale of a former store propertyrolling stock.
Interest Expense. Interest expense totaled $5.3 million for the three-month period ended JuneMarch 25, 20222023 compared with $5.5$5.4 million for the three-month period ended JuneMarch 26, 2021.2022. Total debt at June 2022March 2023 was $575.2$556.7 million compared with $901.2$578.5 million at June 2021. Excluding the $350.0 million aggregate principle of the Notes due in 2031 issued in June 2021, debt would total $551.2 million at June 26, 2021.March 2022.
Income Taxes. Income tax expense totaled $22.7$13.5 million for the three months ended JuneMarch 25, 2022 and June 26,2021, with2023, reflecting an effective tax rate of 25.1% and 24.0%25.0% of pretax income, respectively.income. Income tax expense totaled $22.4 million for the three months ended March 26, 2022, reflecting an effective tax rate of 24.6% of pretax income.
Net Income. Net income totaled $67.8$40.5 million for the three-month period ended JuneMarch 25, 20222023 compared with $72.0$68.6 million for the three-month period ended JuneMarch 26, 2021.2022. Basic and diluted earnings per share for Class A Common Stock were $3.65$2.18 and $3.57,$2.13, respectively, for the June 2022March 2023 quarter, compared to $3.88$3.70 and $3.79,$3.61, respectively, for the June 2021March 2022 quarter. Basic and diluted earnings per share for Class B Common Stock were each $3.32$1.98 for the June 2022March 2023 quarter compared with $3.52$3.36 for the June 2021March 2022 quarter.
NineSix Months Ended JuneMarch 25, 20222023 Compared to the NineSix Months Ended JuneMarch 26, 20212022
Net income for the nine months ended June 25, 2022first half of fiscal 2023 totaled $202.6$109.9 million, compared with net income of $178.0$134.8 million earned for the first nine monthshalf of fiscal 2021.2022. Retail grocery sales increased, due to continued consumer trends seen sincebut inflation and the beginning of the COVID-19 pandemic as well as the effects of inflation.labor market increased salary and wage expense, resulting in lower pre-tax income.
Net Sales. Net sales increased by $574.4$105.3 million, or 15.7%3.8%, to $4.23$2.87 billion for the ninesix months ended JuneMarch 25, 20222023 compared with $3.65$2.77 billion for the ninesix months ended JuneMarch 26, 2021. Comparing the first nine months of fiscal 2022 with the first nine months of fiscal 2021, gasoline sales dollars and gallons sold were higher as market prices increased and travel increased.2022. Excluding gasolinefuel sales, total grocery comparable store sales increased 8.6%4.67% over the comparative nine-monthsix-month period. Comparing the first nine months of fiscal years 2022 and 2021 (and excluding gasoline), the number of customer transactions increased 1.5% and the average transaction size increased 7.0%.
Sales by product category (in thousands) were as follows:
| Six Months Ended | |||||
March 25, | March 26, | |||||
2023 | 2022 | |||||
Grocery | $ | 1,033,411 | $ | 970,585 | ||
Non-foods | 636,040 | 594,091 | ||||
Perishables | 722,392 | 720,001 | ||||
Fuel | 368,023 | 391,025 | ||||
Total retail grocery | $ | 2,759,866 | $ | 2,675,702 | ||
Sales by product category (in thousands) are as follows:
| Nine Months Ended | |||||
June 25, | June 26, | |||||
2022 | 2021 | |||||
Grocery | $ | 1,443,699 | $ | 1,302,734 | ||
Non-foods | 897,881 | 840,083 | ||||
Perishables | 1,080,661 | 990,040 | ||||
Gasoline | 656,594 | 405,397 | ||||
Total retail grocery | $ | 4,078,835 | $ | 3,538,254 | ||
Changes in retail grocery sales for the nine monthsquarter ended JuneMarch 25, 20222023 are summarized as follows (in thousands):
| |||
Total retail sales for the nine months ended June 26, 2021 | $ | 3,538,254 | |
Comparable store sales increase (including gasoline) | 509,202 | ||
Impact of stores opened in fiscal 2021 | 38,256 | ||
Impact of stores closed in fiscal 2021 | (8,518) | ||
Other | 1,641 | ||
Total retail sales for the nine months ended June 25, 2022 | $ | 4,078,835 |
| |||
Total retail sales for the six months ended March 26, 2022 | $ | 2,675,702 | |
Comparable store sales increase (including fuel) | 83,792 | ||
Other | 372 | ||
Total retail sales for the six months ended March 25, 2023 | $ | 2,759,866 |
The grocery“Grocery” category includes grocery, dairy, and frozen foods.
The non-foods“Non-foods” category includes alcoholic beverages, tobacco, pharmacy, and health/beauty/cosmetic products.
The perishables“Perishables” category includes meat, produce, deli and bakery.
Gross Profit. Gross profit for the nine-monthsix-month period ended JuneMarch 25, 20222023 totaled $1.1 billion, an increase$697.1 million, a decrease of $88.8$2.0 million, or 9.2%0.3%, compared with gross profit of $962.2$699.1 million for the nine-monthsix-month period ended JuneMarch 26, 2021.2022. Gross profit as a percentage of sales was 24.9%24.3% and 26.3%25.3% for the ninesix months ended JuneMarch 25, 2023 and March 26, 2022, respectively. Inflation and June 26, 2021, respectively. Retail grocery gross margin, excluding gasoline, was one basis point higher forsupply chain pressures have increased the nine months ended June 25, 2022 compared with the nine months ended June 26, 2021.cost of goods sold.
Operating and Administrative Expenses. Operating and administrative expenses increased $57.7$30.3 million, or 8.1%5.9%, to $772.2$545.1 million for the ninesix months ended JuneMarch 25, 2022,2023, from $714.5$514.8 million for the ninesix months ended JuneMarch 26, 2021.2022. As a percentage of sales, operating and administrative expenses were 18.3%19.0% and 19.6%18.6% for the JuneMarch 2023 and March 2022 and June 2021 nine-monthsix-month periods, respectively. Excluding gasolinefuel sales and associated gasolinefuel operating expenses (primarily payroll), operating expenses were 21.4%21.6% of sales for the first ninesix months of 20222023 compared with 21.8%21.5% for the first ninesix months of 2021.2022.
A breakdown of the major changes in operating and administrative expenses is as follows:
Increase | ||||||
Increase | as a % of | |||||
in millions | sales | |||||
Salaries and wages | $ | 28.2 | 0.67 | % | ||
Depreciation and amortization | $ | 5.8 | 0.14 | % | ||
Bank charges | $ | 5.6 | 0.13 | % | ||
Professional fees | $ | 4.9 | 0.12 | % | ||
Increase | ||||||
Increase | as a % of | |||||
in millions | sales | |||||
Salaries and wages | $ | 21.8 | 0.76 | % | ||
Repairs and maintenance | $ | 4.9 | 0.17 | % | ||
Utilities and fuel | $ | 2.8 | 0.10 | % | ||
Store supplies | $ | 2.8 | 0.10 | % | ||
Salaries and wages increased in dollars due to additional labor hours required for the increased sales volume including extraand continued labor needed in response to the COVID-19 pandemic.market pressures.
DepreciationRepairs and maintenance expense increased due to equipment purchased for store improvements, information technology,higher refrigerant costs and the distribution network.cost of other supply items, as well as increased wear and tear on equipment to accommodate sales volume.
Bank chargesUtilities and fuel expense increased as a resultdue to higher costs of increased sales and higher card usage compared with cash or checks.energy.
Professional fees increasedStore supplies are up for the year due to raw material shortages and inflation, especially in conjunction with improvements to the Company’s information technology platforms.packaging materials.
Gain from Sale or Disposal of Assets. Gain from the sale or disposal of assets totaled $1.2$1.4 million duringfor the ninesix months ended JuneMarch 25, 2022, primarily from2023. For the rolling stock transactions. During the ninesix months ended JuneMarch 26, 2021,2022, the gain from the sale or disposal of assets totaled $3.6 million primarily from the sale of a former store property.$1.2 million.
Interest Expense. Interest expense totaled $16.1$10.7 million for the nine-monthsix-month period ended JuneMarch 25, 20222023 compared with $18.1$10.8 million for the nine-monthsix-month period ended JuneMarch 26, 2021. Over the past twelve months, the Company has reduced or refinanced its higher rate
debt.
Loss on Early Extinguishment of Debt. During the nine-month June 2021 period, the Company wrote off $1.12022. Total debt at March 2023 was $556.7 million of capitalized loan costs related to the retirement of the 2023 Notes and the Company’s former line of credit.compared with $578.5 million at March 2022.
Income Taxes. Income tax expense totaled $65.5$36.0 million for the ninesix months ended JuneMarch 25, 2022,2023, reflecting an effective tax rate of 24.4%24.7% of pretax income. Income tax expense totaled $56.2$42.8 million for the ninesix months ended JuneMarch 26, 2021,2022, reflecting an effective tax rate of 24.0%24.1% of pretax income.
Net Income. Net income totaled $202.6$109.9 million for the nine-monthsix-month period ended JuneMarch 25, 20222023 compared with $178.0$134.8 million for the nine-monthsix-month period ended JuneMarch 26, 2021.2022. Basic and diluted earnings per share for Class A Common Stock were $10.91$5.92 and $10.67,$5.79, respectively, for the ninesix months ended JuneMarch 25, 2022,2023, compared to $9.22$7.26 and $8.98,$7.10, respectively, for the ninesix months ended JuneMarch 26, 2021.2022. Basic and diluted earnings per share for Class B Common Stock were each $9.92$5.38 for the nine-monthssix months ended JuneMarch 25, 20222023 compared with $8.38$6.60 for the ninesix months ended JuneMarch 26, 2021.2022.
Liquidity and Capital Resources
Capital Expenditures
The Company believes that a key to its ability to continue to develop a loyal customer base is providing conveniently located, clean and modern stores which provide customers with good service and an increasingly diverse selection of competitively priced products. Therefore,Capital expenditures totaled $91.4 million for the Company has invested and plans to continue to invest significant amounts of capital toward the modernization of its store base.six-month period ended March 25, 2023. The Company’s modernization program includescapital expenditures include the openingconstruction of new stores, the completionexpansion and remodeling of major remodels and expansion of selected existing stores, the relocationacquisition of selected existing stores to larger, more convenient locationssites, new technology, and the completion of minor remodeling of its remaining existing stores.
Capital expenditures totaled $73.2 million for the nine-month period ended June 25, 2022. These capital expenditures focused on construction of stores scheduled to open in fiscal 2023, site acquisition, and smaller-scale remodeling projects in a numberupgrades of the Company’s stores. Capital expenditures also included the costs of upgradingtransportation fleet and replacing store equipment, technology investments, rolling stock, and capital expenditures related to the Company’s milk processing plant.facilities.
Ingles’The Company’s capital expenditure plans for fiscal 20222023 currently include investments of approximately $100$140 to $120$180 million. The Company currently plans to dedicate the remaindermajority of its fiscal 20222023 capital expenditures to continued improvement of its store base and continued investment in one store expected to open in fiscal 2023, as well as technology improvements, upgrading and replacing existing store, equipment and warehouse and transportation equipment and improvements to the Company’s milk processing plant.
The Company currently expects that its annual capital expenditures will be in the range of approximately $100 to $160 million going forward in order to maintain a modern store base. Among other things, planned expenditures for any given future fiscal year will be affected by the availability of financing, which can affect both the number of projects pursued at any given time and the cost of those projects. The number of projects may also fluctuate due to the varying costs of the types of projects pursued including new stores and major remodel/expansions. The Company makes decisions on the allocation of capital expenditure dollars based on many factors including the competitive environment, other Company capital initiatives and its financial condition.
The Company does not generally enter into commitments for capital expenditures other than on a store-by-store basis at the time it begins construction on a new store or begins a major or minor remodeling project. Outstanding construction commitments totaled $10.9 million at June 25, 2022.
Liquidity
The Company generated $261.6$94.4 million net cash from operations infor the June 2022 nine-monthMarch 2023 six-month period compared with $213.9$155.5 million for the March 2022 six-month period. Cash from operations decreased by $61.1 million due to lower net income and more working capital needs during the June 2021 nine-month period. Net income was higher for the nine-month 2022March 2023 six-month period compared with the prior year, and the nine-month 2021 year had higher working capital needs to maintain and build inventory levels back to more normal levels following the beginning of the COVID-19 Pandemic. March 2022 six-month period.
Cash used by investing activities for the nine-monthsix-month periods ended JuneMarch 25, 2023 and March 26, 2022 and June 26, 2021 totaled $181.8$89.6 million and $396.4$142.6 million, respectively. The decrease for the nine-month period ended June 2022respectively, consisting primarily of capital expenditures and purchases of short term investments. Higher current year capital expenditures and no purchases of short term investments as compared to the nine-monthprior year period ended June 2021, was primarily related toaccounted for the $295.0 million of proceeds investeddifference in short-term investments frominvesting activities between the Company’s issuance of $350.0 million aggregate principal amount of 4.00% senior notes (the “2031 Notes”) prior to the redemption of the 2023 Notes in July 2021. The decrease was offset by $110 million purchases of short-term investments in 2022.two six-month periods.
Cash used by financing activities totaled $24.1$21.7 million for the nine-monthsix-month period ended JuneMarch 25, 2022,2023, compared with cash provided by financing activities of $200.1$17.6 million for the nine-monthsix-month period ended JuneMarch 26, 2021.2022. The decrease isincrease was primarily related to the issuance of the 2031 Notes, offset by the repurchase of common stock and the net repayments of short-term borrowings during the 2021 period.principal payments on long-term debt.
In June 2021, the Company issued the$350.0 million aggregate principal amount of senior notes due 2031 Notes.(the “Notes”). The 2031 Notes bear an interest rate of 4.00% per annum and were issued at par. Upon issuance of the 2031 Notes, the Company issued an irrevocable notice to redeem the remaining $295.0 million principal amount of the 2023 Notes, which the Company redeemed at par value on July 16, 2021.
The Company has a $150.0 million line of credit (the “Line”) that matures in June 2026. The Line provides the Company with various interest rate options based on the prime rate, the Federal Funds Rate, or LIBOR. The Line allows the Company to issue up to $10.0 million in letters of credit, of which none were issued at JuneMarch 25, 2022.2023. The Company is not required to maintain compensating balances in connection with the Line. At JuneMarch 25, 2022,2023, the Company had no borrowings outstanding under the Line.
In December 2010, the Company completed the funding of $99.7 million of Bonds (the “Bonds”) for the construction of new warehouse and distribution space adjacent to its existing space in Buncombe County, North Carolina (the “Project”). The final maturity date of the Bonds is January 1, 2036.
Under a Continuing Covenant and Collateral Agency Agreement (the “Covenant Agreement”) between certain financial institutions and the Company, the financial institutions would hold the Bonds until December 17, 2029, subject to certain events. Mandatory redemption of the Bonds by the Company in the annual amount of $4.5 million began on January 1, 2014. The outstanding balance of the Bonds is $59.0was $54.4 million as of JuneMarch 25, 2022.2023. The Company may redeem the Bonds without penalty or premium at any time prior to December 17, 2029. The Covenant Agreement was amended during the three months ended December 25, 2021, to extend the holding period and reduce the interest rate on the Bonds.
In September 2017, the Company refinanced approximately $60 million secured borrowing obligations with a LIBOR-based amortizing floating rate loan secured by real estate maturing in October 2027. The Company has an interest rate swap agreement for a current notional amount of $32.0$27.5 million at a fixed rate of 3.92%. Under this agreement, the Company pays monthly the fixed rate of 3.92% and receives the one-month LIBOR plus 1.65%. The interest rate swap effectively hedges floating rate debt in the same amount as the current notional amount of the interest rate swap. Both the floating rate debt and the interest rate swap have monthly principal amortization of $0.5 million and mature October 1, 2027.
In December 2019, the Company closed a $155 million LIBOR-based amortizing floating rate loan secured by real estate maturing in January 2030. The Company has an interest rate swap agreement for a current notional amount of $134.3$128.5 million at a fixed rate of
2.95%. Under this agreement, the Company pays monthly the fixed rate of 2.95% and receives the one-month LIBOR plus 1.50%. The interest rate swap effectively hedges floating rate debt in the same amount as the current notional amount of the interest swap. Both the floating rate debt and the interest rate swap have monthly principal amortization of $0.65 million and mature in fiscal year 2030.
The fair market value of the interest rate swaps isare measured quarterly with adjustments recorded in other comprehensive income.
The Company’s long-term debt agreements generally have cross-default provisions which could result in the acceleration of payments due under the Company’s Line, Bonds and Notes indenture in the event of default under any one instrument.
The Company’s long-term debt agreements generally contain provisions that under certain circumstances would permit lending institutions to terminate or withdraw their respective extensions of credit to the Company. Included among the triggering factors permitting the termination or withdrawal of the Line to the Company are certain events of default, including both monetary and non-monetary defaults, the initiation of bankruptcy or insolvency proceedings, and the failure of the Company to meet certain financial covenants designated in its respective loan documents. As of JuneMarch 25, 2022,2023, the Company was in compliance with these covenants. Under the most restrictive of these covenants, the Company would be ablehave been permitted to incur approximately $2.3$2.2 billion of additional borrowings (including borrowings under the Line) as of JuneMarch 25, 2022.2023.
The Company’s principal sources of liquidity are expected to be cash flow from operations, borrowings under the Line and long-term debt financing. The Company believes, based on its current results of operations and financial condition, that its financial resources, including the Line, short- and long-term financing expected to be available to it and internally generated funds, will be sufficient to meet planned capital expenditures and working capital requirements for the foreseeable future, including any debt service requirements of additional borrowings. However, there is no assurance that any such sources of financing will be available to the Company when needed on acceptable terms, or at all.
It is possible that, in the future, the Company’s results of operations and financial condition will be different from that described in this reportQuarterly Report on Form 10-Q based on a number of factors. These factors may include, among others, increased competition, changing regional and national economic conditions, adverse climatic conditions affecting food production and delivery, changing demographics, and the impact of the COVID-19 pandemic, as well as the additional factors discussed below under “Forward“Forward- Looking Statements.” It is also possible, for such reasons, that the results of operations from the new, expanded, remodeled and/or replacement stores will not meet or exceed the results of operations from existing stores that are described in this report.Quarterly Report on Form 10-Q.
Quarterly Cash Dividends
Since December 27, 1993, the Company has paid regular quarterly cash dividends of $0.165 (sixteen and one-half cents) per share on its Class A Common Stock and $0.15 (fifteen cents) per share on its Class B Common Stock for an annual rate of $0.66 and $0.60 per share, respectively.
The Company expects to continue paying regular cash dividends on a quarterly basis. However, the Board of Directors periodically reconsiders the declaration of dividends. The Company pays these dividends at the discretion of the Board of Directors and the continuation of these payments, the amount of such dividends, and the form in which the dividends are paid (cash or stock) depends upon the results of operations, the financial condition of the Company and other factors which the Board of Directors deems relevant. In addition, the Notes, the Bonds, the Line, and other debt agreements contain provisions that, based on certain financial parameters, restrict the ability of the Company to pay additional cash dividends in excess of current quarterly per share amounts. Further, the Company is prevented from declaring dividends at any time that it is in default under the indenture governing the Notes.
Seasonality
Grocery sales are subject to a slight seasonal variance due to both holiday related sales and due to sales in areas where seasonal homes are located. Sales are traditionally higher in the Company’s first fiscal quarter due to the inclusion of sales related to Thanksgiving and Christmas. TheUnless Easter falls within the quarter, the Company’s second fiscal quarter traditionally has the lowest sales of the year unless Easter falls in that quarter.predominantly due to lower occupancy of seasonal homes. In the third and fourth quarter,quarters, sales are usually positively affected by the return of customers to seasonal homes in our market area. The Company’s fluid dairy operations have slight seasonal variation to the extent of its sales into the grocery industry. The Company’s real estate activities are not subject to seasonal variations.
Impact of Inflation
As the economy recoverscontinues to recover from the initial impact of the COVID-19 pandemic, inflation has reached levels not experienced in decades. Food and energy costs have increased,remain high, reflecting a tight labor market and supply chain and transportation disruptions.disruptions, while energy costs have decreased.
The following table from the United States Bureau of Labor Statistics lists annualized changes in the Consumer Price Index that could have an effect on the Company’s operations. One of the Company’s significant costs is labor, which increases with general increases in inflation. Inflation andor deflation in energy costs affects the Company’s gasolinefuel sales, distribution expenses and plastic supply costs. During the past twelve months, inflation has reached its highest level in a number of years, impacting food costs, transportation costs, and labor costs.
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Forward LookingForward-Looking Statements
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.amended (the “Exchange Act”). The words “expect”, “anticipate”, “intend”, “plan”, “likely”, “goal”, “believe”, “seek”, “will”, “may”, “would”, “should” and similar expressions are intended to identify forward-looking statements. While these forward-looking statements and the related assumptions are made in good faith and reflect the Company’s current judgment regarding the direction of the Company’s business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested or described by such forward-looking statements. Such statements are based upon a number of assumptions and estimates which are inherently subject to significant risks and uncertainties many of which are beyond the Company’s control. Some of these assumptions inevitably will not materialize, and unanticipated events will occur which will affect the Company’s results. Some important factors (but not necessarily all factors) that affect the Company’s revenues, financial position, growth strategies, profitability and operating results, or that otherwise could cause actual results to differ materially from those expressed in or implied by any forward-looking statement, include the potential continued impact of the COVID-19 pandemic on our business and economic conditions generally in the Company’s operating area; the Company’s ability to successfully implement its expansion and operating strategies and to manage rapid expansion; pricing pressures and other competitive factors; reduction in per gallon retail gasolinefuel prices; the maturation of new and expanded stores; the Company’s ability to reduce costs and achieve improvements in operating results; the availability and terms of financing; increases in labor and utility costs; success or failure in the ownership and development of real estate; changes in the laws and government regulations applicable to the Company; disruptions in the efficient distribution of food products; changes in accounting policies, standards, guidelines or principles as may be adopted by regulatory agencies as well as the Financial Accounting Standards Board; and those factors contained under the heading “Risk Factors” in Item 1A of Part I of our most recent Annual Report on Form 10-K.10-K for the year ended September 24, 2022, filed by the Company under the Exchange Act, on November 23, 2022.
Consequently, actual events affecting the Company and the impact of such events on the Company’s operations may vary significantly from those described in this reportQuarterly Report on Form 10-Q or contemplated or implied by statements in this report.Quarterly Report on Form 10-Q. The Company does not undertake and
specifically denies any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments, except to the extent required by applicable law.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As disclosed elsewhereunder “Liquidity” in Part I Item 2 of this Quarterly Report on Form 10-Q, the Company is a party to interest rate swap agreements for a current aggregate notional amount of $166.3$156.0 million. Otherwise, the Company does not typically utilize financial instruments for trading or other speculative purposes, nor does it typically utilize leveraged financial instruments. 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 for the year ended September 25, 2021.24, 2022, filed by the Company under the Exchange Act, on November 23, 2022.
Item 4. CONTROLS AND PROCEDURES
(a)Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures designed to provide reasonable assurance of achieving the objective that information in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified and pursuant to the regulations of the Securities and Exchange Commission.Commission (the “SEC”). Disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act, include controls and procedures designed to ensure the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. It should be noted that the Company’s system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met.
As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of JuneMarch 25, 2022,2023, the end of the period covered by this report.Quarterly Report on Form 10-Q. In making this evaluation, it considered matters previously identified and disclosed in connection with the filing of its Annual Report on Form 10-K for fiscal 2021.2022. After consideration of the matters discussed above and the changes in internal control over financial reporting discussed below, the Company hasCompany’s Chief Executive Officer and Chief Financial Officer concluded that itsthe Company’s disclosure controls and procedures were effective as of JuneMarch 25, 2022.2023.
(b) Changes in Internal Control over Financial Reporting
The Company is currently planning and performing tests of internal controls over financial reporting for fiscal year 2022.2023.
No changes in internal control over financial reporting occurred during the Company’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II. OTHER INFORMATION
Item 6. EXHIBITS
(a) Exhibits.
101 | * | The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended |
104 | * | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
________
*Filed herewith.
**Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrantregistrant has duly caused this Form 10-Qreport to be signed on its behalf by the undersigned thereunto duly authorized.
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| INGLES MARKETS, INCORPORATED |
Date: |
| /s/ James W. Lanning
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| James W. Lanning |
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| Chief Executive Officer and President (principal executive officer) |
Date: |
| /s/ Patricia E. Jackson
|
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| Patricia E. Jackson, CPA |
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| Vice President-Finance and Chief Financial Officer (principal financial and accounting officer) |