Village Super Market Sidelined by Big-box Retailers

Supermarket chain feels the sting of competition in same-store sales

v1Village Super Market Inc. (NASDAQ: VLGEA), best known for its ShopRite supermarket chain, announced its Q1 FY17 results on December 07th, 2016.

The Springfield, New Jersey-based company is engaged in the retail sale of food and non-food products. As of July 30th, 2016, the Company operated a chain of 29 ShopRite supermarkets, 18 of which are located in northern New Jersey, eight in southern New Jersey, two in Maryland, and one in northeastern Pennsylvania.

The Company’s stores include the Village Food Garden concept, featuring a restaurant style kitchen and several kiosks offering a variety of store prepared specialty foods for both take-home and in-store dining. The Company offers a range of products, including groceries, dairy and frozen, produce, meats, non-foods, deli and prepared food, pharmacy, seafood, bakery and liquor. Read more about Village Super Market’s financial results below.

Q1 FY17 financial highlights

During Q1 FY17, Village Super Market’s revenue showed a slight uptick to $389.7 million from $389.5 million in the comparable period last year. Same store sales were flat during the reporting quarter. While same store sales increased due to the closure of four competitor stores and continued sales growth in the expanded or replaced stores in Stirling and Greater Morristown, these increases were offset by reduced sales due to seven new competitor store openings, including stores formerly operated by A&P, and deflation in the meat and dairy departments.

v2As a result, during Q1 FY17, Village Super Market’s gross profit as a percentage of sales decreased to 26.85% compared to 27.08% in the prior year same period. On the brighter side, operating and administrative expenses as a percentage of sales decreased to 23.39% compared to 23.45% in the prior year same period, primarily due to decreased non-union pension expenses which was partially offset by higher payroll. Payroll costs increased due to investments in service departments and reduced operating leverage on flat same store sales. Consequently, operating income reduced to $7.45 million from $8.19 million in the year ago comparable period.

Lower operating and administrative expenses, flat same store sales, and lower operating income pulled down Q1 FY17 net income by 7% to $4.11 million, or $0.29 per diluted share, compared to $4.43 million, or $0.31 per diluted share, in the year ago same period.

Village Super Market, a smaller and more localized supermarket chain, faces headwinds in the form of declining food prices, lower store traffic, and lower average ticket. The company also faces intense competition from big box retailers such as Wal-Mart Stores Inc. (NYSE: WMT), The Kroger Co. (NYSE: KR), and Whole Foods Market Inc. (NASDAQ: WFM), among others, which offer a greater variety of products and services. Moreover, all these retailers have been investing heavily in unified point-of-sale system, including EMV technology, apps, digital coupons, and loyalty programs.

With more people going online for their shopping needs, most big-box retailers are also offering online grocery shopping, with grocery pickup at their stores or home delivery on the same day to cater to the needs of busy customers. Larger retailers also testing smaller concept stores that sell everything from gas, convenience items, grocery, grab-and-go items, and household goods, and Village Super Market indeed needs a differentiating factor to attract customers.

Guidance

The Company expects same-store sales in full-year FY17 to range from a 0.5% decrease to a 1.5% increase. Village has budgeted approximately $25,000 for capital expenditures in FY17. Planned expenditures include the beginning of construction of a new store in the Bronx, New York, one major remodel, and several smaller remodels.

Stock Performance

v3Village Super Market’s stock ended the day at $32.04, marginally slipping 0.87%, at the close on Friday, December 09th, 2016, having vacillated between an intraday high of $32.37 and a low of $31.05 during the session. The stock’s trading volume was at 88,390 for the day. The Company’s market cap was at $318.16 million as of Friday’s close.

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