Supermarket chain feels the sting of competition in same-store sales
Village Super Market Inc. (NASDAQ: VLGEA), best known for its ShopRite supermarket chain, announced its 3Q FY16 results on June 2nd, 2016. The Springfield, New Jersey-based company reported a slight revenue increase of 0.2% to $387.9 million during 3Q FY16, from $387.1 million in the comparable period last year. Same-store sales showed a slight uptick of 0.2%, owing to the closure of two competitor stores and better sales in expanded or replaced stores in Stirling and Greater Morristown, New Jersey. On the other hand, the increase in same-store sales were partially offset by lower sales in the first week of 3Q FY16 due to winter storm Jonas, as well as six new competitors’ store openings.
The quarterly results of Village Super Market bears a general similarity to the slump in the retail sector at large, where same-store sales were battered either by poor product mix, choppy weather, and soft buying sentiment among consumers for certain categories of non-durable items. Supermarket chains in general witnessed low demand for their products owing to intense competition from big box online retailers despite store expansions and increase of product categories during the Easter season.
Financial slumps with exclusion of one-time gains
Village Super Market Inc.’s gross profit, as a percentage of sales, slightly declined to 27.52% in 3Q FY16, compared to 27.67% in the year-ago quarter. On the brighter side, operating and administrative expenses as a percentage of sales inched down to 23.42% in 3Q FY16, compared to 23.47% in the comparable quarter last year. This was mainly because 3Q FY16 operating and administrative expenses include a gain of insurance proceeds received for super-storm Sandy that hit the U.S. in the October November period of 2012. Excluding the insurance amount, operating and administrative expenses as a percentage of sales increased 0.19% due to higher healthcare costs, and were partially offset by lower payroll costs.
The Company’s net income for the quarter under review nosedived 55% to $5.88 million from $13.21 million in the year-ago quarter. As a result, the Company reported Q3 EPS of $0.42, versus $0.93 reported last year. The prior year period included a one-time gain from insurance receivables related to super-storm Sandy and a tax benefit from a settlement with the New Jersey Division of Taxation. Excluding these items from both fiscal quarters, net income decreased 10% in 3Q FY16, compared to the comparable period last year, mainly on account of poor sales in the first week of 3Q FY16 due to winter storm Jonas, a decline in gross profit percentage, and an increase in operating and administrative costs.
The Company expects same-store sales in full-year FY16 to increase between 0.5% and 1.5%. Village Super Market currently operates 29 ShopRite supermarkets in New Jersey, Maryland, and northeastern Pennsylvania.