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Weis Markets (WMK)

Filed: 5 Nov 20, 11:02am

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 September 26, 2020

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 Number 1-5039

WEIS MARKETS, INC.
(Exact name of registrant as specified in its charter)

Pennsylvania

(State or other jurisdiction of incorporation or organization)

24-0755415
(I.R.S. Employer Identification No.)

 

1000 S. Second Street
P. O. Box 471
Sunbury, Pennsylvania
(Address of principal executive offices)



17801-0471
(Zip Code)

Registrant's telephone number, including area code: (570) 286-4571

Registrant's web address: www.weismarkets.com

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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, 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.

Large accelerated filer [ ]

Accelerated filer [X]

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]

Securities registered pursuant to section 12(b) of the act:

Title of each class

Trading symbol

Name of exchange on which registered

Common stock, no par value

WMK

New York Stock Exchange

As of November 5, 2020, there were issued and outstanding 26,898,443 shares of the registrant’s common stock.



WEIS MARKETS, INC.


Table of Contents

WEIS MARKETS, INC.

PART I – FINANCIAL INFORMATION

ITEM I – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(unaudited)

(dollars in thousands)

September 26, 2020

December 28, 2019

Assets

Current:

Cash and cash equivalents

$

117,408 

$

66,871 

Marketable securities

102,449 

63,538 

SERP investment

20,362 

18,935 

Accounts receivable, net

50,726 

55,764 

Inventories

265,990 

279,806 

Prepaid expenses and other current assets

29,810 

23,378 

Total current assets

586,745 

508,292 

Property and equipment, net

897,768 

886,928 

Operating lease right-to-use

202,058 

210,196 

Goodwill

52,330 

52,330 

Intangible and other assets, net

17,832 

17,816 

Total assets

$

1,756,733 

$

1,675,562 

Liabilities

Current:

Accounts payable

$

188,714 

$

180,718 

Accrued expenses

38,300 

39,528 

Operating leases

39,297 

39,114 

Accrued self-insurance

19,029 

15,719 

Deferred revenue, net

6,539 

8,662 

Income taxes payable

8,783 

8,197 

Total current liabilities

300,662 

291,938 

Postretirement benefit obligations

23,136 

22,143 

Accrued self-insurance

17,612 

17,625 

Operating leases

171,125 

179,654 

Deferred income taxes

100,863 

97,041 

Other

8,629 

8,416 

Total liabilities

622,027 

616,817 

Shareholders’ Equity

Common stock, no par value, 100,800,000 shares authorized, 33,047,807 shares issued,

26,898,443 shares outstanding

9,949 

9,949 

Retained earnings

1,272,655 

1,198,173 

Accumulated other comprehensive income

(Net of deferred taxes of $1,168 in 2020 and $593 in 2019)

2,959 

1,480 

1,285,563 

1,209,602 

Treasury stock at cost, 6,149,364 shares

(150,857)

(150,857)

Total shareholders’ equity

1,134,706 

1,058,745 

Total liabilities and shareholders’ equity

$

1,756,733 

$

1,675,562 

See accompanying notes to Consolidated Financial Statements.


1


Table of Contents

WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

13 Weeks Ended

39 Weeks Ended

(dollars in thousands, except shares and per share amounts)

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

Net sales

$

1,002,387 

$

876,222 

$

3,086,910 

$

2,640,907 

Cost of sales, including advertising, warehousing and distribution expenses

728,054 

643,397 

2,255,544 

1,941,860 

Gross profit on sales

274,333 

232,825 

831,366 

699,047 

Operating, general and administrative expenses

231,527 

215,282 

695,130 

637,385 

Income from operations

42,806 

17,543 

136,236 

61,662 

Investment income (loss) and interest expense

1,890 

1,467 

937 

5,441 

Other income (expense)

(1,218)

(39)

(1,160)

(2,309)

Income before provision for income taxes

43,478 

18,971 

136,013 

64,794 

Provision for income taxes

12,142 

4,652 

36,516 

15,696 

Net income

$

31,336 

$

14,319 

$

99,497 

$

49,098 

Weighted-average shares outstanding, basic and diluted

26,898,443 

26,898,443 

26,898,443 

26,898,443 

Cash dividends per share

$

0.31 

$

0.31 

$

0.93 

$

0.93 

Basic and diluted earnings per share

$

1.16 

$

0.53 

$

3.70 

$

1.83 

See accompanying notes to Consolidated Financial Statements.

2


Table of Contents

WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

13 Weeks Ended

39 Weeks Ended

(dollars in thousands)

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

Net income

$

31,336 

$

14,319 

$

99,497 

$

49,098 

Other comprehensive income (loss) by component, net of tax:

Available-for-sale marketable securities

Unrealized holding gains (losses) arising during period

(Net of deferred taxes of $143 and $67, respectively for the thirteen weeks ended and $575 and $490, respectively for the thirty-nine weeks ended)

362 

166 

1,479 

1,242 

Reclassification adjustment for gains included in net income

(Net of deferred taxes of $0 and $16, respectively for the thirteen weeks ended and $0 and $16, respectively for the thirty-nine weeks ended)

-

(39)

-

(39)

Other comprehensive income gain, net of tax

362 

127 

1,479 

1,203 

Comprehensive income, net of tax

$

31,698 

$

14,446 

$

100,976 

$

50,301 

See accompanying notes to Consolidated Financial Statements.


3


Table of Contents

WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited)

Accumulated

(dollars in thousands, except shares)

Other

Total

For Thirteen Weeks Ended

Common Stock

Retained

Comprehensive

Treasury Stock

Shareholders’

September 26, 2020 and September 28, 2019

Shares

Amount

Earnings

Income (Loss)

Shares

Amount

Equity

Balance at June 27, 2020

33,047,807 

$

9,949 

$

1,249,657 

$

2,598 

6,149,364 

$

(150,857)

$

1,111,347 

Net Income

31,336 

31,336 

Other comprehensive income, net of

reclassification adjustments and tax

362 

362 

Dividends paid

(8,339)

(8,339)

Balance at September 26, 2020

33,047,807 

$

9,949 

$

1,272,655 

$

2,959 

6,149,364 

$

(150,857)

$

1,134,706 

Balance at June 29, 2019

33,047,807 

$

9,949 

$

1,181,647

1,337

6,149,364 

$

(150,857)

$

1,042,076 

Net income

14,319 

14,319 

Other comprehensive income, net of

reclassification adjustments and tax

127 

127 

Dividends paid

(8,339)

(8,339)

Balance at September 28, 2019

33,047,807 

$

9,949 

$

1,187,627 

$

1,465 

6,149,364 

$

(150,857)

$

1,048,184 

Accumulated

(dollars in thousands, except shares)

Other

Total

For the Thirty-Nine weeks Ended

Common Stock

Retained

Comprehensive

Treasury Stock

Shareholders’

September 26, 2020 and September 28, 2019

Shares

Amount

Earnings

Income (Loss)

Shares

Amount

Equity

Balance at December 28, 2019

33,047,807 

$

9,949 

$

1,198,173 

$

1,480 

6,149,364 

$

(150,857)

$

1,058,745 

Net Income

99,497 

99,497 

Other comprehensive income, net of

reclassification adjustments and tax

1,479 

1,479 

Dividends paid

(25,016)

(25,016)

Balance at September 26, 2020

33,047,807 

$

9,949 

$

1,272,655 

$

2,959 

6,149,364 

$

(150,857)

$

1,134,706 

Balance at December 29, 2018

33,047,807 

$

9,949 

$

1,163,545

$

262

6,149,364 

$

(150,857)

$

1,022,899 

Net income

49,098 

49,098 

Other comprehensive income, net of

reclassification adjustments and tax

1,203 

1,203 

Dividends paid

(25,016)

(25,016)

Balance at September 28, 2019

33,047,807 

$

9,949 

$

1,187,627 

$

1,465 

6,149,364 

$

(150,857)

$

1,048,184 

See accompanying notes to Consolidated Financial Statements.


4


Table of Contents

WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

39 Weeks Ended

(dollars in thousands)

September 26, 2020

September 28, 2019

Cash flows from operating activities:

Net income

$

99,497 

$

49,098 

Adjustments to reconcile net income to

net cash provided by operating activities:

Depreciation and amortization

74,003 

69,857 

Loss on disposition of fixed assets

2,618 

1,137 

(Gain) on sale of marketable securities

0

(55)

Unrealized (gain) loss in value of equity securities

1,892 

(1,637)

Deferred income taxes

3,247 

1,483 

Unrealized (gain) in SERP

(760)

(1,289)

Changes in operating assets and liabilities:

Inventories

13,816 

17,519 

Accounts receivable and prepaid expenses

(1,393)

7,205 

Accounts payable and other liabilities

4,694 

(9,153)

Income taxes

587 

3,610 

Other

(4,020)

972 

Net cash provided by operating activities

194,181 

138,747 

Cash flows from investing activities:

Purchase of property and equipment

(83,574)

(70,084)

Proceeds from the sale of property and equipment

308 

1,489 

Purchase of marketable securities

(38,259)

(9,220)

Proceeds from the sale and maturities of marketable securities

3,690 

5,325 

Purchase of intangible assets

(127)

(558)

Change in SERP investment

(666)

(1,910)

Net cash used in investing activities

(118,628)

(74,958)

Cash flows from financing activities:

Dividends paid

(25,016)

(25,016)

Net cash used in financing activities

(25,016)

(25,016)

Net increase in cash and cash equivalents

50,537 

38,773 

Cash and cash equivalents at beginning of year

66,871 

37,808 

Cash and cash equivalents at end of period

$

117,408 

$

76,581 

See accompanying notes to Consolidated Financial Statements. In the first thirty-nine weeks of 2020, there was $32.7 million cash paid for income taxes compared to $10.6 million in 2019 for the same period. Cash paid for interest related to long-term debt was $27 thousand and $50 thousand in the first thirty-nine weeks of 2020 and 2019, respectively.

5


Table of Contents

WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Significant Accounting Policies

Basis of Presentation: The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring deferrals and accruals) considered necessary for a fair presentation have been included. The operating results for the periods presented are not necessarily indicative of the results to be expected for the full year. The Company has evaluated subsequent events for disclosure through the date of issuance of the accompanying unaudited consolidated interim financial statements and there were no material subsequent events which require additional disclosure. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company's latest Annual Report on Form 10-K.

 

(2) Current Relevant Accounting Standards

The Company regularly monitors recently issued accounting standards and assesses their applicability and impact. The Company believes that there are no accounting standard updates that have or will have a material or significant impact on the Company's accounting policies.

 

(3) Marketable Securities

The Company’s marketable securities are all classified as available-for-sale within “Current Assets” in the Company’s Consolidated Balance Sheets. FASB has established three levels of inputs that may be used to measure fair value:

Level 1 Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2 Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and

Level 3 Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

The Company’s marketable securities valued using Level 1 inputs include highly liquid equity securities, for which quoted market prices are available. The Company’s municipal bond portfolio is valued using Level 2 inputs. The Company’s municipal bonds are valued using a combination of pricing for similar securities, recently executed transactions, cash flow models with yield curves and other pricing models utilizing observable inputs, which are considered Level 2 inputs.

For Level 2 investment valuation, the Company utilizes standard pricing procedures of its investment advisory firm which includes various third party pricing services. These procedures also require specific price monitoring practices as well as pricing review reports, valuation oversight and pricing challenge procedures to maintain the most accurate representation of investment fair market value.

The Company accrues interest on its bond portfolio throughout the life of each bond held. Dividends from the equity securities are recognized as received. Interest, dividends and unrealized gains and losses on equity securities are recognized in “Investment income and interest expense” on the Company’s Consolidated Statements of Income. The Company recognized investment income of $1.9 million in the third quarter of 2020, which included an unrealized gain in equity securities of $120 thousand. In the thirteen weeks ending September 28, 2019, the Company recognized investment income of $1.5 million, which included unrealized gains in equity securities of $844 thousand. In the thirty-nine weeks ending September 26, 2020, the Company recognized investment gains of $964 thousand, net of unrealized losses in equity securities of $1.9 million. In the thirty-nine weeks ending September 28, 2019, the Company recognized investment income of $5.5 million, which included unrealized gains in equity securities of $1.6 million.


6


Table of Contents

WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(3) Marketable Securities (continued)

Marketable securities, as of September 26, 2020 and December 28, 2019, consisted of:

Gross

Gross

(dollars in thousands)

Amortized

Unrealized

Unrealized

Fair

September 26, 2020

Cost

Holding Gains

Holding Losses

Value

Available-for-sale:

Level 1

Equity securities

$

7,308 

Level 2

Municipal bonds

$

91,013 

$

5,346 

$

(1,218)

95,141 

$

91,013 

$

5,346 

$

(1,218)

$

102,449 

Gross

Gross

(dollars in thousands)

Amortized

Unrealized

Unrealized

Fair

December 28, 2019

Cost

Holding Gains

Holding Losses

Value

Available-for-sale:

Level 1

Equity securities

$

9,201 

Level 2

Municipal bonds

$

52,264 

$

2,091 

$

(18)

54,337 

$

52,264 

$

2,091 

$

(18)

$

63,538 

Maturities of marketable securities classified as available-for-sale at September 26, 2020, were as follows:

Amortized

Fair

(dollars in thousands)

Cost

Value

Available-for-sale:

Due within one year

$

10,561 

$

10,649 

Due after one year through five years

37,659 

39,421 

Due after five years through ten years

42,793 

45,071 

$

91,013 

$

95,141 

SERP Investments

The Company also maintains a non-qualified supplemental executive retirement plan for certain of its associates which allows them to defer income to future periods. Participants in the plan earn a return on their deferrals based on mutual fund investments. The Company chooses to invest in the underlying mutual fund investments to offset the liability associated with the non-qualified deferred compensation plan. Such investments are reported on the Company’s Consolidated Balance Sheets as “SERP investment,” are classified as trading securities and are measured at fair value using Level 1 inputs with gains and losses included in “Investment income and interest expense” on the Company’s Consolidated Statements of Income. The changes in the underlying liability to the associates are recorded in “Other income (expense).”


7


Table of Contents

WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(4) Accumulated Other Comprehensive Income

All balances in accumulated other comprehensive income are related to available-for-sale marketable securities. The following table sets forth the balance of the Company’s accumulated other comprehensive income, net of tax.

Unrealized Gains

on Available-for-Sale

(dollars in thousands)

Marketable Securities

Accumulated other comprehensive income balance as of December 28, 2019

$

1,480 

Other comprehensive income before reclassifications

1,479 

Amounts reclassified from accumulated other comprehensive income

0

Net current period change in other comprehensive income

1,479 

Accumulated other comprehensive income balance as of September 26, 2020

$

2,959 

The following table sets forth the effects on net income of the amounts reclassified out of accumulated other comprehensive income for the periods ended September 26, 2020 and September 28, 2019.

Amounts Reclassified from

Accumulated Other Comprehensive Income to the

Consolidated Statements of Income

13 Weeks Ended

39 Weeks Ended

(dollars in thousands)

Location

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

Unrealized gains (losses) on available-for-sale marketable securities

Investment income (loss) and interest expense

$

-

$

(55)

$

-

$

(55)

Provision for income taxes

-

16 

-

16 

Total amount reclassified, net of tax

$

-

$

(39)

$

-

$

(39)

(5) Long-Term Debt

On September 1, 2016 Weis Markets entered into a revolving credit agreement with Wells Fargo Bank, National Association (the “Credit Agreement”), which was amended on August 21, 2019 and matures on September 1, 2022. The Credit Agreement provides for an unsecured revolving credit facility with an aggregate principal amount not to exceed $30.0 million with an additional discretionary amount available of $70.0 million. As of September 26, 2020, the availability under the revolving credit agreement was $24.1 million, net of $5.9 million letters of credit. The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company.

Interest expense related to long-term debt was $8 thousand and $10 thousand in the thirteen weeks ended September 26, 2020 and September 28, 2019, respectively. In the first thirty-nine weeks of 2020 and 2019, interest expense related to long-term debt totaled $27 thousand and $43 thousand, respectively.


8


Table of Contents

WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(6) Revenue Recognition

The Chief Operating Officer, the Company’s chief operating decision maker, analyzes store operational revenues by geographical area but each area offers customers similar product, has similar distribution methods, and is supported by centralized management processes. The Company’s operations are reported as a single reportable segment.

The following table represents net sales by type of product for the thirteen and thirty-nine week periods ending September 26, 2020 and September 28, 2019:

13 Weeks Ended

(dollars in thousands)

September 26, 2020

September 28, 2019

Grocery

$

878,378 

87.7

%

$

754,872 

86.1

%

Pharmacy

89,306 

8.9

84,632 

9.7

Fuel

32,275 

3.2

34,041 

3.9

Manufacturing

2,428 

0.2

2,677 

0.3

Total net sales

$

1,002,387 

100.0

%

$

876,222 

100.0

%

39 Weeks Ended

(dollars in thousands)

September 26, 2020

September 28, 2019

Grocery

$

2,729,626 

88.4

%

$

2,289,658 

86.7

%

Pharmacy

264,448 

8.6

251,095 

9.5

Fuel

85,370 

2.8

93,777 

3.6

Manufacturing

7,466 

0.2

6,377 

0.2

Total net sales

$

3,086,910 

100.0

%

$

2,640,907 

100.0

%

(7) Leases

As of September 26, 2020, the Company leased approximately 51% of its open store facilities under operating leases that expire at various dates through 2035, with the remaining store facilities being owned. These leases generally provide for fixed annual rentals; however, several provide for minimum annual rentals plus variable lease costs related to real estate taxes and insurance as well as contingent rentals based on a percentage of annual sales or increases periodically based on inflation. These variable lease costs are not included in the measurement of the operating lease right-to-use assets or lease liabilities and are charged to the related expense category included in “Operating, general and administrative expenses.” Most of the leases contain multiple renewal options, under which the Company may extend the lease terms from 5 to 20 years. Additionally, the Company has operating leases for certain transportation and other equipment.

The Company leases or subleases space to tenants in owned, vacated and open store facilities. Rental income is recorded when earned as a component of “Operating, general and administrative expenses.”

The following is a schedule of the lease costs included in “Operating, general and administrative expenses” for the thirteen and thirty-nine weeks ended September 26, 2020 and September 28, 2019.

13 weeks ended

39 weeks ended

(dollars in thousands)

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

Operating lease cost

$

11,504 

$

11,493 

$

34,554 

$

34,549 

Variable lease cost

2,821 

2,636 

8,355 

8,190 

Lease or sublease income

(2,116)

(1,945)

(6,286)

(5,795)

Net lease cost

$

12,209 

$

12,184 

$

36,623 

$

36,944 


9


Table of Contents

WEIS MARKETS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(8) Prior Year Reclassification

As of December 28, 2019, the Company reclassified non-service components of the Supplemental Executive Retirement Plan (SERP) benefit obligation separately from the service cost component. These non-service components totaling $2.3 million as of September 28, 2019 were reclassified to “Other income (expense)”. The Company recognizes service cost components in “Operating, general and administrative costs”.

The tables below summarize the effects of the reclassifications of previously reported Consolidated Financial Statements for the fiscal quarter ended September 26, 2020.

13 Weeks Ended

September 28, 2019

Consolidated Statements of Income

As Previously

(dollars in thousands)

Reported

Reclassifications

As Adjusted

Operating, general and administrative expenses

$

215,321 

$

(39)

$

215,282 

Income from operations

17,504 

39 

17,543 

Other income (expense)

-

(39)

(39)

39 Weeks Ended

September 28, 2019

Consolidated Statements of Income

As Previously

(dollars in thousands)

Reported

Reclassifications

As Adjusted

Operating, general and administrative expenses

$

639,694 

$

(2,309)

$

637,385 

Income from operations

59,353 

2,309 

61,662 

Other income (expense)

-

(2,309)

(2,309)

39 Weeks Ended

September 28, 2019

Consolidated Statements of Cash Flows

As Previously

(dollars in thousands)

Reported

Reclassifications

As Adjusted

Unrealized (gain) loss in SERP

$

-

$

(1,289)

$

(1,289)

Net cash provided by operating activities

140,036 

(1,289)

138,747 

Change in SERP investment

(3,199)

1,289 

(1,910)

Net cash used in investing activities

(76,247)

1,289 

(74,958)

(9) COVID-19

On March 11, 2020, the World Health Organization declared that the novel coronavirus (COVID-19) had become a pandemic, and on March 13, the U.S. President declared a National Emergency concerning the disease. Additionally, in March 2020, state governments in the Company’s geographic operating area began instituting preventative shut down measures in order to combat the novel coronavirus pandemic. The coronavirus and actions taken to mitigate the spread of it have had and are expected to continue to have an adverse impact on the economies and financial markets of the geographical area in which the Company operates. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted to amongst other provisions, provide emergency assistance for individuals, families and businesses affected by the novel coronavirus pandemic.

The Company’s business being deemed essential resulted in incremental financial performance that may not be indicative of future financial results and there remains uncertainty and increased risks concerning its employees, customers, supply chain and government regulation (see Forward-Looking Statements).

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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of Weis Markets, Inc.’s (the “Company”) financial condition and results of operations should be read in conjunction with the unaudited Consolidated Financial Statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q, the Company’s audited Consolidated Financial Statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 28, 2019, filed with the U.S. Securities and Exchange Commission, as well as the cautionary statement captioned "Forward-Looking Statements" immediately following this analysis.

Company Summary

Weis Markets is a conventional supermarket chain that operates 195 retail stores with over 24,000 associates located in Pennsylvania and six surrounding states: Delaware, Maryland, New Jersey, New York, Virginia and West Virginia. Approximately 98% of Weis Markets associates are paid an hourly wage. Its products include groceries, dairy products, frozen foods, meats, seafood, fresh produce, floral, pharmacy services, deli products, prepared foods, bakery products, beer and wine, fuel and general merchandise items, such as health and beauty care and household products. The store product selection includes national, local and private brands and the Company promotes by using Everyday Lower Price; Low Price Guarantee; Low, Low Price; and Loyalty programs. The Loyalty program includes fuel rewards that may be redeemed at the Company’s fuel stations or one of its third-party fuel station partners.

On March 11, 2020, the World Health Organization declared that the novel coronavirus (COVID-19) had become a pandemic, and on March 13, the U.S. President declared a National Emergency concerning the disease. Additionally, in March 2020, state governments in the Company’s geographic operating area began instituting preventative shut down measures in order to combat the novel coronavirus pandemic. The Company’s business was deemed essential and thus its stores have remained open during this time period, and sales, costs and profits have increased. Although the Company sees similar sales and profit results extending into the beginning of the next quarter, the Company is not able to speculate how the ensuing economy or unknown future related expenses will affect it after the governmental novel coronavirus pandemic measures have ended. The closure of other food sources and government stimulus payments to affected individuals have been accretive to our sales; however, the Company also faces new and increased risks concerning its employees, government regulation and supply chain (see Forward-Looking Statements, below).

The Company advertises its products and promotes its brand through radio ads; e-mail blasts; and on-line via its web site, social media and mobile applications.  Printed circulars have been used extensively on a weekly basis to advertise featured items.  The Company promotes by using Everyday Lower Price, Low Price Guarantee, Low, Low Price and utilizes a loyalty marketing program, “Weis Club Preferred Shopper,” which enables customers to receive discounts, promotions and in-store and fuel rewards. During the current novel coronavirus pandemic, the Company has reduced its use of weekly newspaper circulars which resulted in a cost savings. At this point the Company has not determined if its use of printed circulars will be increased after the end of the pandemic.

Utilizing its own centrally located distribution center and transportation fleet, Weis Markets self distributes approximately 69% of product with the remaining being supplied by direct store vendors. In addition, the Company has three manufacturing facilities which process milk, ice cream and fresh meat products primarily for the Company’s stores but serve other companies as well. The corporate offices are located in Sunbury, PA where the Company was founded in 1912. The Company has implemented current CDC guidelines to attempt to ensure the continuity of its distribution center and fleet.

The Company continues to innovate and remain relevant to industry trends and offering customer convenience by presenting

programs like “Weis 2 Go Online” ordering with curbside pickup and home delivery. In the third quarter of 2020, the Company offered Weis 2 Go Online curbside pickup in 182 of its locations as well as home delivery with Shipt in 175 different locations. During the first thirty-nine weeks of 2020, ecommerce sales have increased 147% when compared to the same period in 2019.


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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

Results of Operations

Analysis of Consolidated Statements of Income

Percentage Changes

13 Weeks Ended

39 Weeks Ended

2020 vs. 2019

2020 vs. 2019

(dollars in thousands except per share amounts)

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

13 Weeks Ended

39 Weeks Ended

Net sales

$

1,002,387 

$

876,222 

$

3,086,910 

$

2,640,907 

14.4

%

16.9

%

Cost of sales, including advertising, warehousing and distribution expenses

728,054 

643,397 

2,255,544 

1,941,860 

13.2

16.2

Gross profit on sales

274,333 

232,825 

831,366 

699,047 

17.8

18.9

Gross profit margin

27.4 

%

26.6 

%

26.9 

%

26.5 

%

Operating, general and administrative expenses

231,527 

215,282 

695,130 

637,385 

7.5

9.1

O, G & A, percent of net sales

23.1 

%

24.6 

%

22.5 

%

24.1 

%

Income from operations

42,806 

17,543 

136,236 

61,662 

144.0

120.9

Operating margin

4.3 

%

2.0 

%

4.4 

%

2.3 

%

Investment income and interest expense

1,890 

1,467 

937 

5,441 

28.8

(82.8)

Investment income and interest expense, percent of net sales

0.2 

%

0.2 

%

0.0 

%

0.2 

%

Other income (expense)

(1,218)

(39)

(1,160)

(2,309)

3023.1

(49.8)

Other income (expense), percent of net sales

(0.1)

%

0.0

%

0.0

%

(0.1)

%

Income before provision for income taxes

43,478 

18,971 

136,013 

64,794 

129.2

109.9

Income before provision for income taxes, percent of net sales

4.3 

%

2.2 

%

4.4 

%

2.5 

%

Provision for income taxes

12,142 

4,652 

36,516 

15,696 

161.0

132.6

Effective income tax rate

27.9 

%

24.5 

%

26.8 

%

24.2 

%

Net income

$

31,336 

$

14,319 

$

99,497 

$

49,098 

118.8

%

102.6

%

Net income, percent of net sales

3.1 

%

1.6 

%

3.2 

%

1.9 

%

Basic and diluted earnings per share

$

1.16 

$

0.53 

$

3.70 

$

1.83 

118.9

%

102.2

%

Net Sales

Analysis of Sales

Percentage Changes

2020 vs. 2019

September 26, 2020

13 Weeks Ended

39 Weeks Ended

Net sales

14.4 

%

16.9 

%

Net sales, excluding fuel sales

15.2 

17.8 

Comparable store sales

14.8 

17.3 

Comparable store sales, excluding fuel sales

15.7 

%

18.4 

%

When calculating the percentage change in comparable store sales, the Company defines a new store to be comparable after it has been in operation for five full quarters. Relocated stores and stores with expanded square footage are included in comparable store sales since these units are located in existing markets and are open during construction. Planned store dispositions are excluded from the calculation. The Company only includes retail food stores in the calculation.


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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

Results of Operations (continued)

Net Sales (continued)

Analysis of Sales (continued)

According to the latest U.S. Bureau of Labor Statistics’ report, the annual Seasonally Adjusted Food-at-Home Consumer Price Index decreased 1.6% compared to a decrease of 0.3% for the same period last year. Even though the U.S. Bureau of Labor Statistics’ index rates may be reflective of a trend, it will not necessarily be indicative of the Company’s actual results. According to the U.S. Department of Energy, the thirteen-week average price of gasoline in the Central Atlantic States decreased 14.7% or $0.42 per gallon in the third quarter of 2020 compared to the same quarter in 2019. The year to date average decreased 13.0% or $0.36 per gallon in the first thirty-nine weeks of 2020 when compared to the same period in 2019.

Comparable store sales for the third quarter of 2020 is positive compared to the same period a year ago, with increases of 14.8% with fuel and 15.7% without fuel. Year to date, comparable store sales for 2020 also remained positive when compared to the same period in 2019, with increases of 17.3% and 18.4% with and without fuel, respectively. The Company’s 2020 sales were favorably impacted as a result of increased sales demand related to the novel coronavirus pandemic as well as increasing market share.

Although the Company experienced retail inflation and deflation in various commodities for the periods presented, the recent novel coronavirus pandemic has caused uncertainty about future economic conditions and may change future product mix. Management cannot accurately measure the full impact of inflation or deflation on retail pricing due to changes in the types of merchandise sold between periods, shifts in customer buying patterns and the fluctuation of competitive factors. Management remains confident in its ability to generate sales growth in a highly competitive environment, but also understands some competitors have greater financial resources and could use these resources to take measures which could adversely affect the Company's competitive position.

Cost of Sales and Gross Profit

Cost of sales consists of direct product costs (net of discounts and allowances), net advertising costs, distribution center and transportation costs, as well as manufacturing facility operations. Increased sales volume resulted in an increase in cost of sales. Both direct product cost and distribution cost increase when sales volume increases.

Gross profit on sales for the third quarter of 2020 increased 0.8% when compared to the same period in 2019. Year to date, 2020 gross profit on sales is positive when compared to the same period in 2019, with an increase of 0.5%. The increase in gross profit rate is attributable to a change in sales mix along with increased fresh department sell through, which reduced the amount of product loss.

Non-cash LIFO inventory valuation adjustments represent expense of $2.2 million in the first thirty-nine weeks of 2020, compared to income of $1.2 million in 2019. Although the Company experienced cost inflation and deflation in various commodities for the periods presented, the recent novel coronavirus pandemic has caused uncertainty about future economic conditions. Due to this uncertainty, management has estimated a greater annual increase in LIFO expense than it has in previous years due to expected product cost inflation by year end.


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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

Results of Operations (continued)

Operating, General and Administrative Expenses

The majority of the operating, general and administrative expenses are driven by sales volume.

Employee-related costs such as wages, employer paid taxes, health care benefits and retirement plans, comprise approximately 63% of the total “Operating, general and administrative expenses.” As a percent of sales, direct store labor decreased 0.8% in the third quarter of 2020 when compared to the same period in 2019, and decreased 0.6% when comparing the first thirty-nine weeks of 2020 with the same period in 2019.

Depreciation and amortization expense charged to “Operating, general and administrative expenses” was $23.9 million, or 2.4% of net sales during the third quarter of 2020 compared to $21.4 million, or 2.5% of net sales during the third quarter of 2019. During the first thirty-nine weeks of 2020 and 2019, depreciation and amortization expense charged to “Operating, general and administrative expenses” was $67.3 million, or 2.2% of net sales and $63.9 million, or 2.4% of net sales, respectively. See the Liquidity and Capital Resources section for further information regarding the Company’s capital expansion program.

A breakdown of the material increases (decreases) as a percent of sales in "Operating, general and administrative expenses" is as follows:

13 Weeks Ended

(dollars in thousands)

Increase

Increase (Decrease)

September 26, 2020

(Decrease)

as a % of sales

Wages expense

$

6,495 

(0.9)

%

Fixed expense

3,713 

(0.3)

Utilities expense

(345)

(0.2)

39 Weeks Ended

(dollars in thousands)

Increase

Increase (Decrease)

September 26, 2020

(Decrease)

as a % of sales

Wages expense

$

30,562 

(0.8)

%

Fixed expense

6,441 

(0.5)

Utilities expense

(1,714)

(0.2)

Fixed expenses include occupancy costs, depreciation and amortization and insurance expenses. Although fixed expenses have increased from a cost perspective, the increase in sales has caused a decrease in the percent of sales rate.

The majority of the operating, general and administrative expenses as a percent of sales presented for the third quarter and first thirty-six weeks of 2020 have benefited in comparison with the 2019 percent of sales due to the increase in sales caused by the novel coronavirus pandemic. Due to the nature of fixed expenses, management expects less variability when analyzed as a percent of sales, relative to the majority of operating, general and administrative expenses.


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Table of Contents

WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Provision for Income Taxes

The effective income tax rate was 27.9% and 24.5% for the thirteen weeks ended September 26, 2020 and September 28, 2019, respectively. The effective income tax rate was 26.8% and 24.2% for the first thirty-nine weeks of 2020 and 2019, respectively. Historically, the effective income tax rate differed from the federal statutory rate, primarily due to the effect of state taxes, net of permanent differences.

Liquidity and Capital Resources

The primary source of cash is cash flows generated from operations. In addition, the Company has access to a revolving credit agreement entered into on September 1, 2016, and amended on August 21, 2019, with Wells Fargo Bank, NA (the “Credit Agreement”). The Credit Agreement matures on September 1, 2022 and provides for an unsecured revolving credit facility with an aggregate principal amount not to exceed $30.0 million with an additional discretionary amount available of $70.0 million. As of September 26, 2020, the availability under the revolving credit agreement was $24.1 million with $5.9 million of letters of credit outstanding. The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company.

The Company’s investment portfolio consists of high-grade bonds with maturity dates between one and 10 years and three long-held high yield, large capitalized public company equity securities. The portfolio totaled $102.4 million as of September 26, 2020. Management anticipates maintaining the investment portfolio but has the ability to liquidate if needed.

The Company’s capital expansion program includes the construction of new superstores, the expansion and remodeling of existing units, the acquisition of sites for future expansion, new technology purchases and the continued upgrade of the Company’s distribution facilities and transportation fleet. Management currently plans to invest approximately $90 million in its capital expansion program in 2020. However, management’s ability to complete its current plans will depend upon the governmental jurisdictions in which the Company operates and preventative shut down mandates by such jurisdictions regarding the novel coronavirus pandemic.

The Company expects that cash generated from operations and cash available under the Credit Agreement will fund its working capital requirements, debt requirements, capital expansion program, acquisitions and dividends. The Company has no other commitment of capital resources as of September 26, 2020, other than the lease commitments on its store facilities and transportation equipment under operating leases that expire at various dates through 2035.

The Board of Directors’ 2004 resolution authorizing the repurchase of up to one million shares of the Company’s common stock has a remaining balance of 752,468 shares. The Company has entered into a brokerage agreement with Wells Fargo Securities, LLC to facilitate possible share repurchases.

Quarterly Cash Dividends

At its regular meeting held in October, the Board of Directors unanimously approved a quarterly dividend of $0.31 per share, payable on November 23, 2020 to shareholders of record on November 9, 2020. The Company expects to continue paying regular cash dividends on a quarterly basis. However, the Board of Directors reconsiders the declaration of dividends quarterly. The Company pays these dividends at the discretion of the Board of Directors and the continuation of these payments and the amount of the dividends depends upon the results of operations, the financial condition of the Company and other factors which the Board of Directors deems relevant.


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WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(continued)

Liquidity and Capital Resources (continued)

Cash Flow Information

39 Weeks Ended

(dollars in thousands)

September 26, 2020

September 28, 2019

2020 vs. 2019

Net cash provided by (used in):

Operating activities

$

194,181 

$

138,747 

$

55,434 

Investing activities

(118,628)

(74,958)

(43,670)

Financing activities

(25,016)

(25,016)

-

Operating

Cash flows from operating activities increased $55.4 million in the first thirty-nine weeks of 2020 compared to the first thirty-nine weeks of 2019. Management attributes this increase to increased sales volume resulting from the novel coronavirus pandemic. Sales and profit increased substantially over the same period last year, while inventory levels have decreased in the stores.

Investing

Property and equipment purchases during the first thirty-nine weeks of 2020 totaled $83.6 million compared to $70.1 million in the first thirty-nine weeks of 2019. As a percentage of sales, capital expenditures were 2.7% in the first thirty-nine weeks of both 2020 and 2019. The Company increased its marketable securities portfolio during the first thirty-nine weeks of 2020 and plans to maintain or increase the portfolio through the remainder of the year.

Financing

The Company paid dividends of $25.0 million in both the first thirty-nine weeks of 2020 and the first thirty-nine weeks of 2019. The Company has not had an obligation on the Credit Agreement since the second quarter of 2018.

Accounting Policies and Estimates

The Company has chosen accounting policies that it believes are appropriate to accurately and fairly report its operating results and financial position, and the Company applies those accounting policies in a consistent manner. The Significant Accounting Policies are summarized in Note 1 to the Consolidated Financial Statements included in the 2019 Annual Report on Form 10-K. There have been no changes to the Significant Accounting Policies since the Company filed its Annual Report on Form 10-K for the fiscal year ended December 28, 2019.


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Table of Contents

WEIS MARKETS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

In addition to historical information, this Form 10-Q Report may contain forward-looking statements, which are included pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. For example, risks and uncertainties can arise with changes in: general economic conditions, including their impact on capital expenditures; business conditions in the retail industry; the regulatory environment; rapidly changing technology and competitive factors, including increased competition with regional and national retailers; and price pressures. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in other documents the Company files periodically with the Securities and Exchange Commission.

On March 11, 2020, the World Health Organization declared that the novel coronavirus (COVID-19) had become a pandemic, and on March 13, the U.S. President declared a National Emergency concerning the disease. Additionally, in March 2020, state governments in the Company’s geographic operating area began instituting preventative shut down measures in order to combat the novel coronavirus pandemic. Management, at this time, cannot assess the ultimate economic impact to the Company, which will be determined by, among other things, the length of time that such circumstances continue, nor can the Company predict the effects of governmental and public responses to changing conditions. Below is a list of risks that management is monitoring:

Employees - Reduced workforces due to the temporary inability to work caused by illness, quarantine, or government mandates.

Supply Chain – Interruption in the Company’s supply chain due to having to suspend operations at its centrally located distribution center or vendors not being able to supply the Company because of their own suspended operations.

Lawsuits – Future litigation arising from issues concerning the novel coronavirus.

Future government regulation - Future laws, regulations, interpretations, administrative orders, or applications that may have an adverse impact on the Company’s operations and costs.

Customer trends – Changes in the methods in which customers procure the Company’s products.

Cyber security – Increased Cyber-attacks due to “work at home” requirements.

.

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Table of Contents

WEIS MARKETS, INC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative Disclosure - There have been no material changes in the Company's market risk during the fiscal quarter ended September 26, 2020. Quantitative information is set forth in Item 7a on the Company’s Annual Report on Form 10-K under the caption “Quantitative and Qualitative Disclosures About Market Risk,” which was filed for the fiscal year ended December 28, 2019 and is incorporated herein by reference.

Qualitative Disclosure - This information is set forth in the Company's Annual Report on Form 10-K under the caption “Liquidity and Capital Resources,” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which was filed for the fiscal year ended December 28, 2019 and is incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

The Chief Executive Officer and the Chief Financial Officer, together with the Company’s Disclosure Committee, evaluated the Company’s disclosure controls and procedures as of the fiscal quarter ended September 26, 2020. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports was accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

In connection with the evaluation described above, there was no change in the Company’s internal control over financial reporting during the fiscal quarter ended September 26, 2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


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Table of Contents

WEIS MARKETS, INC.

PART II – OTHER INFORMATION

ITEM 1a. RISK FACTORS

In addition to risks and uncertainties in the ordinary course of business common to all businesses, an important update to the risk factors previously disclosed in Item 1a of Part I of our Annual Report on Form 10-K for the year ended December 28, 2019 is listed below, which could materially impact the Company’s future performance. The risk factor below and the risk factors included in our Annual Report on Form 10-K may be important to understanding statements in this Form 10-Q and should be read in conjunction with the unaudited consolidated financial statements and related notes in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.

Our business and operations, and the operations of our suppliers, have been, and may in the future be adversely affected by epidemics or pandemics such as the novel coronavirus (COVID-19) pandemic outbreak.

We may face risks related to health epidemics and pandemics or other outbreaks of communicable diseases. The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption. The Company’s business was deemed essential during the novel coronavirus pandemic and the Company is committed to maintaining a safe work and shopping environment. Management, at this time, cannot assess the ultimate economic impact to the Company, which will be determined by, among other things, the length of time that such circumstances continue, nor can the Company predict the effects of governmental and public responses to changing conditions. The risks and uncertainties surrounding the coronavirus pandemic are broad however below is a list of risks management is monitoring which could have a material impact on the Company’s business:

Employees - Reduced workforces due to the temporary inability to work caused by illness, quarantine, or government mandates.

Supply Chain – Interruption in the Company’s supply chain due to having to suspend operations at its centrally located distribution center or vendors not being able to supply the Company because of their own suspended operations.

Lawsuits – Future litigation arising from issues concerning the novel coronavirus.

Future government regulation - Future laws, regulations, interpretations, administrative orders, or applications that may have an adverse impact on the Company’s operations and costs.

Customer trends – Changes in the methods in which customers procure the Company’s products.

Cyber security – Increased Cyber-attacks due to “work at home” requirements.


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WEIS MARKETS, INC.

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Table of Contents

WEIS MARKETS, INC.

SIGNATURES

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

WEIS MARKETS, INC.

(Registrant)

Date:

11/5/2020

/S/Jonathan H. Weis

Jonathan H. Weis

Chairman,

President and Chief Executive Officer

(Principal Executive Officer)

Date:

11/5/2020

/S/Scott F. Frost

Scott F. Frost

Senior Vice President, Chief Financial Officer

and Treasurer

(Principal Financial Officer)

21