Ingles Markets Inc 10-Q for FY2024 Q3
Ingles Markets Inc (IMKTA)
About this 10-Q
Ingles Markets Inc filed this 10-Q on August 8, 2024, covering the quarter ended June 29, 2024 (FY2024 Q3).
Headline figures
Quarter ended June 29, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.39B
- down 2.8% from $1.43B a year earlier
- Net income
- $31.72M
- down 34.3% from net income of $48.26M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
The |
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.
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).
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.
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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
As of August 6, 2024, the registrant had
INGLES MARKETS, INCORPORATED
INDEX
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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 June 29, 2024 and September 30, 2023 |
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Condensed Consolidated Statements of Income and Comprehensive Income for the |
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Three Months Ended June 29, 2024 and June 24, 2023 |
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Nine Months Ended June 29, 2024 and June 24, 2023 |
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Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months and Nine Months Ended June 29, 2024 and June 24, 2023 |
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Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 29, 2024 and June 24, 2023 |
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Notes to Condensed Consolidated Unaudited Interim Financial Statements |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. Controls and Procedures |
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Part II – Other Information |
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Item 5. Other Information |
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Item 6. Exhibits |
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Signatures |
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Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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| June 29, |
| September 30, | ||
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
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Receivables - net |
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Inventories |
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Other current assets |
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Total Current Assets |
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Property and Equipment - Net |
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Operating lease right of use assets |
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Other Assets |
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Total Assets |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities: |
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Current portion of long-term debt |
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Current portion of operating lease liabilities |
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Current portion of finance lease liabilities |
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Accounts payable - trade |
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Accrued expenses and current portion of other long-term liabilities |
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Total Current Liabilities |
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Deferred Income Taxes |
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Long-Term Debt |
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Noncurrent operating lease liabilities |
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Noncurrent finance lease liabilities |
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Other Long-Term Liabilities |
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Total Liabilities |
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Stockholders’ Equity |
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Preferred stock, $ |
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Common stocks: |
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Class A, $ |
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Class B, convertible to Class A, $ |
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Paid-in capital in excess of par value |
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Accumulated other comprehensive income |
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Retained earnings |
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Total Stockholders’ Equity |
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Total Liabilities and Stockholders’ Equity |
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| $ | |
See notes to unaudited condensed consolidated financial statements.
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
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| Three Months Ended | ||||
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Net sales |
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Cost of goods sold |
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Gross profit |
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Operating and administrative expenses |
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Gain from sale or disposal of assets |
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Income from operations |
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Other income, net |
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Interest expense |
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Income before income taxes |
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Income tax expense |
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Net income |
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Other comprehensive (loss) income: |
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Change in fair value of interest rate swap |
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Income tax benefit (expense) |
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Other comprehensive (loss) income, net of tax |
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Comprehensive income |
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Per share amounts: |
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Class A Common Stock |
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Basic earnings per common share |
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Diluted earnings per common share |
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Class B Common Stock |
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Basic earnings per common share |
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Diluted earnings per common share |
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Cash dividends per common share |
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Class A Common Stock |
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| $ | |
Class B Common Stock |
| $ | |
| $ | |
See notes to unaudited condensed consolidated financial statements.
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
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| Nine Months Ended | ||||
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| June 24, | ||
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Net sales |
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Cost of goods sold |
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Gross profit |
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Operating and administrative expenses |
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Gain from sale or disposal of assets |
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Income from operations |
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Other income, net |
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Interest expense |
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Income before income taxes |
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Income tax expense |
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Net income |
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Other comprehensive loss: |
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Change in fair value of interest rate swap |
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Income tax benefit |
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Other comprehensive loss, net of tax |
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Comprehensive income |
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| $ | |
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Per share amounts: |
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Class A Common Stock |
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Basic earnings per common share |
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Diluted earnings per common share |
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Class B Common Stock |
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Basic earnings per common share |
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Diluted earnings per common share |
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Cash dividends per common share |
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Class A Common Stock |
| $ | |
| $ | |
Class B Common Stock |
| $ | |
| $ | |
See notes to unaudited condensed consolidated financial statements.
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
THREE AND NINE MONTHS ENDED JUNE 29, 2024 AND JUNE 24, 2023
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| Paid-in |
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| Capital in |
| Other |
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| Excess of |
| Comprehensive |
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| Amount |
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| Income (Loss) |
| Earnings |
| Total | ||||||
Balance, September 24, 2022 |
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Net income |
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Other comprehensive loss, net of income tax |
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Cash dividends |
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Common stock conversions |
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Balance, December 24, 2022 |
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Net income |
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Other comprehensive loss, net of income tax |
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Cash dividends |
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Common stock conversions |
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Balance, March 25, 2023 |
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| $ | — |
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Net income |
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Other comprehensive income, net of income tax |
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Cash dividends |
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Common stock conversions |
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Balance, June 24, 2023 |
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Balance, September 30, 2023 |
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Net income |
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Other comprehensive loss, net of income tax |
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Cash dividends |
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Common stock conversions |
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Balance, December 30, 2023 |
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Net income |
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Other comprehensive income, net of income tax |
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Cash dividends |
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Common stock conversions |
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Balance, March 30, 2024 |
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Net income |
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Other comprehensive loss, net of income tax |
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Cash dividends |
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Common stock conversions |
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Balance, June 29, 2024 |
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See notes to unaudited condensed consolidated financial statements.
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Cash Flows from Operating Activities: |
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Net income |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization expense |
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Non cash operating lease cost |
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Gain from sale or disposal of assets |
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Receipt of advance payments on purchases contracts |
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Recognition of advance payments on purchases contracts |
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Deferred income taxes |
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Changes in operating assets and liabilities: |
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Receivables |
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Inventory |
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Other assets |
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Operating lease liabilities |
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Accounts payable and accrued expenses |
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Net Cash Provided by Operating Activities |
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Cash Flows from Investing Activities: |
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Proceeds from sales of property and equipment |
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Capital expenditures |
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Net Cash Used by Investing Activities |
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Cash Flows from Financing Activities: |
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Principal payments on long-term borrowings |
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Repayment of finance lease |
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Dividends paid |
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Net Cash Used by Financing Activities |
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Net Increase in Cash and Cash Equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and Cash Equivalents at End of Period |
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See notes to unaudited condensed consolidated financial statements.
INGLES MARKETS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED INTERIM FINANCIAL STATEMENTS
Three Months and Nine Months Ended June 29, 2024 and June 24, 2023
In the opinion of management, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the financial position as of June 29, 2024 and the results of operations and changes in stockholders’ equity for the three-month and nine-month periods ended June 29, 2024 and June 24, 2023, and cash flows of Ingles Markets, Incorporated, a North Carolina corporation (“Ingles”, the “Company”, “we”, “us”, or “our”), for the nine months ended June 29, 2024 and June 24, 2023. The adjustments made are of a normal recurring nature. Certain information and footnote disclosures 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 30, 2023, filed by the Company under the Securities Exchange Act of 1934, on November 29, 2023.
The results of operations for the three-month and nine-month periods ended June 29, 2024 are not necessarily indicative of the results to be expected for the full fiscal year.
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 existed as of March 12, 2020. The relief provided in this ASU extends through December 31, 2024. The U.S. Dollar LIBOR panel ceased following June 30, 2023, and the Company’s debt agreements and interest rate swaps that utilized LIBOR discontinued the use of LIBOR and adopted the Secured Overnight Financing Rate (“SOFR”), which did not materially impact our condensed consolidated unaudited interim financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, which requires greater disaggregation of income tax disclosures. The new standard requires additional information to be disclosed with respect to the income tax rate reconciliation and income taxes paid disaggregated by jurisdiction. This ASU should be applied prospectively for fiscal years beginning after December 15, 2024, with retrospective application permitted. The Company is currently evaluating the impacts of this guidance on the Company’s Consolidated Financial Statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires companies to enhance the disclosures about segment expenses. The new standard requires the disclosure of the Company’s Chief Operating Decision Maker (“CODM”), expanded incremental line-item disclosures of significant segment expenses used by the CODM for decision-making, and the inclusion of previous annual only segment disclosure requirements on a quarterly basis. This ASU should be applied retrospectively for fiscal years beginning after December 15, 2023, and early adoption is permitted. The Company is currently evaluating the impacts of this guidance on the Company’s Consolidated Financial Statements.
From 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 may 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.
Receivables are presented net of an allowance for doubtful accounts of $
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.
Accrued expenses and current portion of other long-term liabilities consist of the following:
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| June 29, |
| September 30, | ||
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| 2024 |
| 2023 | ||
Property, payroll and other taxes payable |
| $ | |
| $ | |
Salaries, wages and bonuses payable |
|
| |
|
| |
Self-insurance liabilities |
|
| |
|
| |
Interest payable |
|
| |
|
| |
Other |
|
| |
|
| |
|
| $ | |
| $ | |
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 $
Employee insurance expense, including workers’ compensation and medical care benefits, net of employee contributions, totaled $
The Company’s fuel operations use underground tanks for the storage of gasoline and diesel fuel. The Company reviewed FASB Accounting Standards Codification Topic 410 (“FASB ASC 410”) and determined that we have a legal obligation to remove tanks at various times in the future and accordingly determined that we have met the requirements for 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 were immaterial for each fuel center, as well as in the aggregate at June 29, 2024 and September 30, 2023.
The U.S. Dollar LIBOR panel ceased following June 30, 2023, and the Company’s debt agreements and interest rate swaps that utilized LIBOR discontinued the use of LIBOR and adopted SOFR, which did not materially impact our condensed consolidated unaudited interim financial statements.
In June 2021, the Company issued at par $
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 | |
2027 | |
2028 | |
2029 and thereafter |
The Company has a $
In December 2010, the Company completed the funding of $
Under a Continuing Covenant and Collateral Agency Agreement (the “Covenant Agreement”) between certain financial institutions and the Company, the financial institutions agreed to hold the Bonds until December 2029, subject to certain events. Mandatory
redemption of the Bonds by the Company in the annual amount of $
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 SOFR (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 $
In December 2019, the Company closed a $
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 and nine months ended June 29, 2024, the Company recorded $
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 loan documents. The Company was in compliance with all financial covenants at June 29, 2024.
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 June 29, 2024, property and equipment with an undepreciated cost of approximately $
The Company paid cash dividends of $
The Company paid cash dividends of $
The Company paid cash dividends of $
The Company paid cash dividends of $
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 29, 2023, as well as Note I, “Earnings Per Common Share” below.
The Company has
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.
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| June 29, 2024 |
| June 29, 2024 | ||||||||
|
| Class A |
| Class B |
| Class A |
| Class B | ||||
Numerator: Allocated net income |
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Net income allocated, basic |
| $ | |
| $ | |
| $ | |
| $ | |
Conversion of Class B to Class A shares |
|
| |
|
| — |
|
| |
|
| — |
Net income allocated, diluted |
| $ | |
| $ | |
| $ | |
| $ | |
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Denominator: Weighted average shares outstanding |
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Weighted average shares outstanding, basic |
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| |
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| |
|
| |
Conversion of Class B to Class A shares |
|
| |
|
| — |
|
| |
|
| — |
Weighted average shares outstanding, diluted |
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Earnings per share |
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Basic |
| $ | |
| $ | |
| $ | |
| $ | |
Diluted |
| $ | |
| $ | |
| $ | |
| $ | |
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| June 24, 2023 |
| June 24, 2023 | ||||||||
|
| Class A |
| Class B |
| Class A |
| Class B | ||||
Numerator: Allocated net income |
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|
Net income allocated, basic |
| $ | |
| $ | |
| $ | |
| $ | |
Conversion of Class B to Class A shares |
|
| |
|
| — |
|
| |
|
| — |
Net income allocated, diluted |
| $ | |
| $ | |
| $ | |
| $ | |
|
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Denominator: Weighted average shares outstanding |
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Weighted average shares outstanding, basic |
|
| |
|
| |
|
| |
|
| |
Conversion of Class B to Class A shares |
|
| |
|
| — |
|
| |
|
| — |
Weighted average shares outstanding, diluted |
|
| |
|
| |
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| |
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| |
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Earnings per share |
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|
Basic |
| $ | |
| $ | |
| $ | |
| $ | |
Diluted |
| $ | |
| $ | |
| $ | |
| $ | |
J. LEASES
Leases as Lessee
The Company conducts part of its retail operations from leased facilities. The initial terms of the leases are generally
Operating Leases – Rent expense for all operating leases totaled $
Finance Leases – Finance lease cost of $
Future maturities of lease liabilities as of June 29, 2024 were as follows:
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|
Fiscal Year |
| Operating Leases |
|
| Finance Leases |
Remainder of 2024 | $ | |
| $ | |
2025 |
| |
|
| |
2026 |
| |
|
| |
2027 |
| |
|
| |
2028 |
| |
|
| |
Thereafter |
| |
|
| |
Total lease payments | $ | |
| $ | |
Less amount representing interest |
| |
|
| |
Present value of lease liabilities | $ | |
| $ | |
On the Condensed Consolidated Balance Sheets, purchases of leased properties offset by lease extensions exercised during the nine months ended June 29, 2024 decreased the line items “Operating lease right of use assets” and “Noncurrent operating lease liabilities”. At June 29, 2024, the weighted average remaining lease term for the Company’s operating leases was
Leases as Lessor
At June 29, 2024, the Company owned and operated
Rental income is included in the line item “Net sales” on the Condensed 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 Condensed Consolidated Statements of Income.
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|
|
| Three Months Ended |
|
| Nine Months Ended |
|
| June 29, 2024 |
|
| June 29, 2024 |
Rents earned on owned and subleased properties: |
|
|
|
|
|
Base rentals | $ | |
| $ | |
Variable rentals |
| |
|
| |
Total |
| |
|
| |
Depreciation on owned properties leased to others |
| ( |
|
| ( |
Other shopping center expenses |
| ( |
|
| ( |
Total | $ | |
| $ | |
Future minimum operating lease receipts at June 29, 2024 were as follows:
|
|
|
Fiscal Year |
|
|
Remainder of 2024 | $ | |
2025 |
| |
2026 |
| |
2027 |
| |
2028 |
| |
Thereafter |
| |
Total minimum future rental income | $ | |
The Company operates
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| Three Months Ended |
| Nine Months Ended | ||||||||
|
| June 29, |
| June 24, |
| June 29, |
| June 24, | ||||
|
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Revenues from unaffiliated customers: |
|
|
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|
|
|
|
|
|
|
|
|
Grocery |
| $ | |
| $ | |
| $ | |
| $ | |
Non-foods |
|
| |
|
| |
|
| |
|
| |
Perishables |
|
| |
|
| |
|
| |
|
| |
Fuel |
|
| |
|
| |
|
| |
|
| |
Total Retail |
| $ | |
| $ | |
| $ | |
| $ | |
Other |
|
| |
|
| |
|
| |
|
| |
Total revenues from unaffiliated customers |
| $ | |
| $ | |
| $ | |
| $ | |
|
|
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Income from operations: |
|
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|
|
Retail |
| $ | |
| $ | |
| $ | |
| $ | |
Other |
|
| |
|
| |
|
| |
|
| |
Total income from operations |
| $ | |
| $ | |
| $ | |
| $ | |
|
|
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|
|
| June 29, |
| September 30, | ||
|
| 2024 |
| 2023 | ||
Assets: |
|
|
|
|
|
|
Retail |
| $ | |
| $ | |
Other |
|
| |
|
| |
Elimination of intercompany receivable |
|
| ( |
|
| ( |
Total assets |
| $ | |
| $ | |
The “Grocery” category includes grocery, dairy, and frozen foods.
The “Non-foods” category includes alcoholic beverages, tobacco, pharmacy, and health/beauty/cosmetic products.
The “Perishables” category includes meat, produce, deli and bakery.
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 June 29, 2024 were as follows (in thousands):
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|
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|
|
| Carrying |
|
|
|
| Fair Value | |
|
| Amount |
| Fair Value |
| Measurements | ||
Senior Notes due 2031 |
| $ | |
| $ | |
| Level 2 |
Facility Bonds due 2036 |
|
| |
|
| |
| Level 2 |
Secured notes payable and other |
|
| |
|
| |
| Level 2 |
Interest rate swap derivative contracts asset |
|
| |
|
| |
| Level 2 |
Non-qualified retirement plan assets |
|
| |
|
| |
| Level 2 |
The carrying amount and fair value of the Company’s debt, interest rate swaps, and non-qualified retirement plan assets at September 30, 2023 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
| Carrying |
|
|
|
| Fair Value | |
|
| Amount |
| Fair Value |
| Measurements | ||
Senior Notes due 2031 |
| $ | |
| $ | |
| Level 2 |
Facility Bonds due 2036 |
|
| |
|
| |
| Level 2 |
Secured notes payable and other |
|
| |
|
| |
| Level 2 |
Interest rate swaps derivative contract assets |
|
| |
|
| |
| Level 2 |
Non-qualified retirement plan assets |
|
| |
|
| |
| Level 2 |
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 nine months ended June 29, 2024, there were $
In January 2024, the Company and a limited liability company having Mr. Robert P. Ingle II, the Company’s Chairman of the Board, as one of its principals swapped adjoining properties. In accordance with the Company’s related party transaction policy, independent fair market value appraisals were obtained, and the transaction was approved by the Audit Committee. The Company received $
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). 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 products to its customers through the development of certified organic products, bakery departments and prepared foods including delicatessen sections.
Critical Accounting Estimates
Critical accounting estimates are those estimates 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.
For the nine months ended June 29, 2024, there were no material changes to our critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 that have had a material impact on our condensed consolidated financial statements and related notes.
Self-Insurance
The Company is self-insured for workers’ compensation, general liability 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 $500,000 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 which is then applied to appropriate actuarial methods. 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. At June 29, 2024 the Company’s self-insurance reserves totaled $34.5 million. This amount included $4.1 million of expected self-insurance recoveries from excess cost insurance or other sources that were recorded as a receivable.
Asset Impairments
The Company accounts for the impairment of long-lived assets in accordance with FASB ASC Topic 360. Asset groups are primarily composed of our individual stores and shopping center properties. 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, net of costs to sell. 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-month period ended June 29, 2024.
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 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 $34.3 million and $31.4 million for the fiscal quarters ended June 29, 2024 and June 24, 2023, respectively. For the nine-month periods ended June 29, 2024 and June 24, 2023, vendor allowances applied as a reduction of merchandise costs totaled $106.9 million and $96.0 million, respectively. Vendor advertising allowances that represent a reimbursement of specific 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 $2.1 million for each of the fiscal quarters ended June 29, 2024 and June 24, 2023. For the nine-month periods ended June 29, 2024 and June 24, 2023, vendor advertising allowances recorded as a reduction of advertising expense totaled $6.3 million and $6.0 million, respectively.
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.
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. The Condensed Consolidated Statements of Income for the three- and nine-month periods ended June 29, 2024 and June 24, 2023 each include 13 and 39 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 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-month periods ended June 29, 2024 and June 24, 2023, comparable store sales included 198 stores.
The following table sets forth, for the periods indicated, selected financial information as a percentage of net sales. For information regarding the business’ segments, see Note K “Segment Information” to the Condensed Consolidated Financial Statements.
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|
| Three Months Ended |
| Nine Months Ended | ||||||||
|
| June 29, |
| June 24, |
| June 29, |
| June 24, | ||||
|
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Net sales |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
| 100.0 | % |
Gross profit |
| 23.7 | % |
| 23.6 | % |
| 23.6 | % |
| 24.0 | % |
Operating and administrative expenses |
| 20.5 | % |
| 18.9 | % |
| 20.3 | % |
| 18.8 | % |
Gain from sale or disposal of assets |
| — | % |
| — | % |
| 0.2 | % |
| — | % |
Income from operations |
| 3.2 | % |
| 4.7 | % |
| 3.5 | % |
| 5.2 | % |
Other income, net |
| 0.3 | % |
| 0.2 | % |
| 0.2 | % |
| 0.1 | % |
Interest expense |
| 0.4 | % |
| 0.4 | % |
| 0.4 | % |
| 0.4 | % |
Income tax expense |
| 0.8 | % |
| 1.1 | % |
| 0.8 | % |
| 1.2 | % |
Net income |
| 2.3 | % |
| 3.4 | % |
| 2.5 | % |
| 3.7 | % |
Three Months Ended June 29, 2024 Compared to the Three Months Ended June 24, 2023
Net income for the third quarter of fiscal 2024 totaled $31.7 million compared with net income of $48.3 million for the third quarter of fiscal 2023. The decrease related primarily to an increase in operating and administrative expenses as a percentage of sales.
Net Sales. Net sales decreased by $40.3 million, or 2.8%, to $1.39 billion for the three months ended June 29, 2024 compared with $1.43 billion for the three months ended June 24, 2023. Excluding fuel sales, total grocery comparable store sales decreased 4.1% over the comparative fiscal quarter. Ingles operated 198 stores at both June 29, 2024 and June 24, 2023.
Sales by product category were as follows (in thousands):
|
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|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended | ||||
|
| June 29, |
| June 24, | ||
|
| 2024 |
| 2023 | ||
Grocery |
| $ | 478,099 |
| $ | 490,327 |
Non-foods |
|
| 303,619 |
|
| 329,149 |
Perishables |
|
| 362,409 |
|
| 362,174 |
Fuel |
|
| 194,695 |
|
| 196,105 |
Total retail grocery |
| $ | 1,338,822 |
| $ | 1,377,755 |
The “Grocery” category includes grocery, dairy, and frozen foods.
The “Non-foods” category includes alcoholic beverages, tobacco, pharmacy, and health/beauty/cosmetic products.
The “Perishables” category includes meat, produce, deli and bakery.
Changes in retail grocery sales for the quarter ended June 29, 2024 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
Total retail sales for the three months ended June 24, 2023 |
| $ | 1,377,755 |
Comparable store sales decrease (including fuel) |
|
| (50,303) |
Other |
|
| 11,370 |
Total retail sales for the three months ended June 29, 2024 |
| $ | 1,338,822 |
Gross Profit. Gross profit for the three-month period ended June 29, 2024 totaled $329.8 million, a decrease of $8.3 million, or 2.5%, compared with gross profit of $338.1 million for the three-month period ended June 24, 2023. Gross profit as a percentage of sales was 23.7% and 23.6% for the three months ended June 29, 2024 and June 24, 2023, respectively.
Operating and Administrative Expenses. Operating and administrative expenses increased $15.3 million, or 5.7%, to $286.3 million for the three months ended June 29, 2024, from $270.9 million for the three months ended June 24, 2023. As a percentage of sales, operating and administrative expenses were 20.5% and 18.9% for the June 2024 and June 2023 quarters, respectively.
A breakdown of the major changes in operating and administrative expenses is as follows:
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| |
|
|
|
| Increase | ||
|
| Increase |
| as a % of | ||
|
| in millions |
| sales | ||
Salaries and wages |
| $ | 5.0 |
| 0.36 | % |
Insurance |
| $ | 4.4 |
| 0.31 | % |
Repairs and maintenance |
| $ | 1.7 |
| 0.12 | % |
Salaries and wages increased due to increased labor market competition, which has increased the Company’s cost to attract and retain associates in the Company’s market area.
Insurance expense increased due to higher claim volume for the Company’s self-insured employee benefit plans.
Repairs and maintenance 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.
Gain from Sale or Disposal of Assets. Gain from the sale or disposal of assets totaled $643.0 thousand for the three months ended June 29, 2024. During the quarter ended June 24, 2023, the gain from the sale or disposal of assets was $116.2 thousand.
Interest Expense. Interest expense totaled $5.4 million for each of the three-month periods ended June 29, 2024 and June 24, 2023. Total debt at June 2024 was $535.9 million compared with $553.4 million at June 2023.
Income Taxes. Income tax expense totaled $10.6 million for the three months ended June 29, 2024 and $15.7 million for the three months ended June 24, 2023, reflecting effective tax rates of 25.1% and 24.6%, respectively.
Net Income. Net income totaled $31.7 million for the three-month period ended June 29, 2024 compared with $48.3 million for the three-month period ended June 24, 2023. Basic and diluted earnings per share for Class A Common Stock were $1.71 and $1.67, respectively, for the June 2024 quarter, compared to $2.60 and $2.54, respectively, for the June 2023 quarter. Basic and diluted earnings per share for Class B Common Stock were each $1.55 for the June 2024 quarter compared with $2.36 for the June 2023 quarter.
Nine Months Ended June 29, 2024 Compared to the Nine Months Ended June 24, 2023
Net income for the nine months ended June 29, 2024 totaled $107.0 million, compared with net income of $158.2 million for the nine months ended June 24, 2023.
Net Sales. Net sales decreased by $65.7 million, or 1.5%, to $4.24 billion for the nine months ended June 29, 2024 compared with $4.31 billion for the nine months ended June 24, 2023. Excluding fuel sales, total grocery comparable store sales decreased 1.1% over the comparative nine-month period. Ingles operated 198 stores at both June 29, 2024 and June 24, 2023.
Sales by product category were as follows (in thousands):
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| Nine Months Ended | ||||
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| June 29, |
| June 24, | ||
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| 2024 |
| 2023 | ||
Grocery |
| $ | 1,490,393 |
| $ | 1,523,738 |
Non-foods |
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| 967,638 |
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| 965,189 |
Perishables |
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| 1,079,528 |
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| 1,084,565 |
Fuel |
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| 542,324 |
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| 564,128 |
Total retail grocery |
| $ | 4,079,883 |
| $ | 4,137,620 |
Changes in retail grocery sales for the nine months ended June 29, 2024 are summarized as follows (in thousands):
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Total retail sales for the nine months ended June 24, 2023 |
| $ | 4,137,620 |
Comparable store sales increase (including fuel) |
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| (59,085) |
Other |
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| 1,348 |
Total retail sales for the nine months ended June 29, 2024 |
| $ | 4,079,883 |
The “Grocery” category includes grocery, dairy, and frozen foods.
The “Non-foods” category includes alcoholic beverages, tobacco, pharmacy, and health/beauty/cosmetic products.
The “Perishables” category includes meat, produce, deli and bakery.
Gross Profit. Gross profit for the nine-month period ended June 29, 2024 totaled $1.00 billion, a decrease of $34.8 million, or 3.36%, compared with gross profit of $1.04 billion for the nine-month period ended June 24, 2023. Gross profit as a percentage of sales was 23.6% and 24.0% for the nine months ended June 29, 2024 and June 24, 2023, respectively.
Operating and Administrative Expenses. Operating and administrative expenses increased $44.9 million, or 5.5%, to $860.8 million for the nine months ended June 29, 2024, from $816.0 million for the nine months ended June 24, 2023. As a percentage of sales, operating and administrative expenses were 20.3% and 18.8% for the June 2024 and June 2023 nine-month periods, respectively.
A breakdown of the major changes in operating and administrative expenses is as follows:
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| Increase | ||
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| Increase |
| as a % of | ||
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| in millions |
| sales | ||
Salaries and wages |
| $ | 20.4 |
| 0.48 | % |
Insurance |
| $ | 12.8 |
| 0.30 | % |
Repairs and maintenance |
| $ | 4.1 |
| 0.10 | % |
Salaries and wages increased in dollars due to increased labor market competition, which has increased the Company’s cost to attract and retain associates in the Company’s market area.
Insurance expense increased due to higher claim volume for the Company’s self-insured employee benefit plans.
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.
Gain from Sale or Disposal of Assets. During the nine months ended June 29, 2024, the gain from the sale or disposal of assets totaled $9.0 million, primarily due to the exchange of adjacent properties, compared to $1.5 million during the nine months ended June 24, 2023.
Interest Expense. Interest expense totaled $16.7 million for the nine-month period ended June 29, 2024 compared with $16.1 million for the nine-month period ended June 24, 2023.
Income Taxes. Income tax expense totaled $35.5 million for the nine months ended June 29, 2024 and $51.7 million for the nine months ended June 24, 2023, reflecting effective tax rates of 24.9% and 24.6%, respectively.
Net Income. Net income totaled $107.0 million for the nine-month period ended June 29, 2024 compared with $158.2 million for the nine-month period ended June 24, 2023. Basic and diluted earnings per share for Class A Common Stock were $5.76 and $5.63, respectively, for the nine months ended June 29, 2024, compared to $8.51 and $8.33, respectively, for the nine months ended June 24, 2023. Basic and diluted earnings per share for Class B Common Stock were each $5.23 for the nine months ended June 29, 2024 compared with $7.74 for the nine months ended June 24, 2023.
Liquidity and Capital Resources
Capital Expenditures
Capital expenditures totaled $143.0 million for the nine-month period ended June 29, 2024. The Company’s capital expenditures include the construction of one new store, the expansion and remodeling of existing stores, the acquisition of sites, new technology, and upgrades of the Company’s transportation fleet and facilities.
The Company’s capital expenditure plans for fiscal 2024 currently include investments of approximately $170 to $190 million. The Company currently plans to dedicate the remainder of its fiscal 2024 capital expenditures to continued improvement of its store base, including remodeling and continued investment in one store expected to open by the end of fiscal 2024, as well as technology improvements, upgrading and replacing existing store, 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 $120 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.
Liquidity
The Company generated $189.3 million net cash from operations for the nine-month period ended June 29, 2024 compared with $177.0 million for the nine-month period ended June 24, 2023. Net cash from operations increased due to a decrease in working capital needs during the June 2024 nine-month period compared with the June 2023 nine-month period.
Cash used by investing activities for the nine-month periods ended June 29, 2024 and June 24, 2023 totaled $138.5 million and $135.2 million, respectively, consisting primarily of capital expenditures.
Cash used by financing activities totaled $24.5 million for the nine-month period ended June 29, 2024 compared with $28.2 million for the nine-month period ended June 24, 2023. The decrease was primarily related to principal payments on long-term debt.
The U.S. Dollar LIBOR panel ceased following June 30, 2023, and the Company’s debt agreements and interest rate swaps that utilized LIBOR discontinued the use of LIBOR and adopted SOFR, which did not materially impact our condensed consolidated unaudited interim financial statements.
In June 2021, the Company issued $350.0 million aggregate principal amount of senior notes due 2031 (the “Notes”). The Notes bear an interest rate of 4.00% per annum and were issued at par.
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 SOFR. The Line allows the Company to issue up to $10.0 million in letters of credit, of which none were issued at June 29, 2024. The Company is not required to maintain compensating balances in connection with the Line. At June 29, 2024, 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 agreed to 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 was $49.9 million as of June 29, 2024. The Company may redeem the Bonds without penalty or premium at any time prior to December 17, 2029.
In September 2017, the Company refinanced approximately $60 million secured borrowing obligations with a SOFR-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 $20.0 million at a fixed rate of 3.962%. Under this agreement, the Company pays monthly the fixed rate of 3.962% and receives the one-month SOFR plus 1.75%. 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 SOFR-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 $118.8 million at a fixed rate of 2.998%. Under this agreement, the Company pays monthly the fixed rate of 2.998% and receives the one-month SOFR plus 1.60%. 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 is 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 June 29, 2024, the Company was in compliance with these covenants. Under the most restrictive of these covenants, the Company would have been permitted to incur approximately $1.2 billion of additional borrowings (including borrowings under the Line) as of June 29, 2024.
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 Quarterly 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 a resurgence of the COVID-19 pandemic or variants of the virus, as well as the additional factors discussed below under “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 Quarterly Report on Form 10-Q.
Quarterly Cash Dividends
Since December 27, 1993, the Company has paid regular quarterly cash dividends of $0.165 per share on its Class A Common Stock and $0.15 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 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. Unless Easter falls within the quarter, the Company’s second fiscal quarter traditionally has the lowest sales of the year predominantly due to lower occupancy of seasonal homes. In the third and fourth quarters, sales are usually positively affected by the return of customers to seasonal homes in our market area.
Impact of Inflation
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 inflation. Inflation or deflation in energy costs affects the Company’s fuel sales, distribution expenses and plastic supply costs. During the past twelve months, inflation has declined from recent highs, impacting food costs, transportation costs, and labor costs.
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| Twelve Months Ended | ||
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| June 2024 | ||
All items |
| 3.0 | % |
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Food at home |
| 1.1 | % |
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Energy |
| 1.0 | % |
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Forward-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 (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, a resurgence of the COVID-19 pandemic or variants of the virus 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 fuel 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 for the year ended September 30, 2023, filed by the Company under the Exchange Act, on November 29, 2023.
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 Quarterly Report on Form 10-Q or contemplated or implied by statements in this 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 under “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 $138.8 million. The Company does not utilize financial instruments for trading or other speculative purposes, nor does it typically utilize highly 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 30, 2023, filed by the Company under the Exchange Act, on November 29, 2023.
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 (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 June 29, 2024, the end of the period covered by this 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 2023. Following such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 29, 2024.
(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 2024.
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 5. OTHER INFORMATION
During the three months ended June 29, 2024, none of our officers or directors
Item 6. EXHIBITS
(a) Exhibits.
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101 | * | The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 2024, formatted in iXBRL (Inline Extensible Business Reporting Language) and furnished electronically herewith: (i) the Consolidated Statements of Earnings; (ii) the Consolidated Balance Sheets; (iii) the Consolidated Statements of Cash Flows; (iv) the Consolidated Statements of Comprehensive Income; and (v) the Notes to the Consolidated Financial Statements. |
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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 registrant has duly caused this to be signed on its behalf by the undersigned thereunto duly authorized.
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| INGLES MARKETS, INCORPORATED |
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Date: August 8, 2024 |
| /s/ James W. Lanning
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| James W. Lanning |
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| President and Chief Executive Officer (principal executive officer) |
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Date: August 8, 2024 |
| /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) |
Exhibit 31.1
CERTIFICATION PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James W. Lanning, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Ingles Markets, Incorporated;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: August 8, 2024 |
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/s/ James W. Lanning
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James W. Lanning |
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Chief Executive Officer and President |
Exhibit 31.2
CERTIFICATION PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Patricia E. Jackson, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Ingles Markets, Incorporated;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: August 8, 2024 |
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/s/ Patricia E. Jackson
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Patricia E. Jackson |
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Vice President - Finance and |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Ingles Markets, Incorporated (the “Company”) on Form 10-Q for the period ended June 29, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James W. Lanning, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
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/s/ James W. Lanning
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James W. Lanning |
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Chief Executive Officer and President |
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August 8, 2024 |
The foregoing certification is being furnished as an exhibit of the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 and, accordingly, is not being filed with the Securities and Exchange Commission as part of the Report and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Act of 1934, as amended (whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing).
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Ingles Markets, Incorporated (the “Company”) on Form 10-Q for the period ended June 29, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patricia E. Jackson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
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/s/ Patricia E. Jackson
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Patricia E. Jackson |
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Vice President - Finance and |
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Chief Financial Officer |
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August 8, 2024 |
The foregoing certification is being furnished as an exhibit of the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 and, accordingly, is not being filed with the Securities and Exchange Commission as part of the Report and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Act of 1934, as amended (whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing).