Ingles Markets Incorporated is a leading supermarket chain with operations in the southeastern United States. Ingles' strategy is to locate its supermarkets primarily in suburban areas small towns and rural communities where management believes the market may be underserved by existing supermarkets. Ingles Markets Inc. has a market cap of $359.59 million; its shares were traded at around $15.07 with a P/E ratio of 7.2 and P/S ratio of 0.11. The dividend yield of Ingles Markets Inc. stocks is 4.55%. Ingles Markets Inc. had an annual average earning growth of 7.1% over the past 10 years. GuruFocus rated Ingles Markets Inc. the business predictability rank of 2-star.
Highlight of Business Operations: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 comprised 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 vendors products. These allowances generally relate to short term arrangements with vendors, often relating to a period of a month or less, and are negotiated on a purchase-by-purchase or transaction-by-transaction basis. Whenever possible, 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 system constraints 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 $23.6 million and $24.9 million for the fiscal quarters ended December 27, 2008 and December 29, 2007, respectively. Vendor advertising allowances that represent a reimbursement of specific identifiable incremental costs of advertising the vendors specific products are recorded as a reduction to the related expense in the period that the related expense is incurred. Vendor advertising allowances recorded as a reduction of advertising expense totaled $3.3 million and $2.6 million for the fiscal quarters ended December 27, 2008 and December 29, 2007, respectively.
Interest Expense. Interest expense increased $1.5 million for the three-month period ended December 27, 2008 to $13.0 million from $11.5 million for the three-month period ended December 29, 2007. Total debt at December 27, 2008 was $753.4 million compared to $605.1 million at December 29, 2007. In general, new debt added over the past twelve months has been at interest rates lower than existing or repaid debt.
Net Income. Net income decreased $1.6 million or 12.3% for the three-month period ended December 27, 2008 to $11.1 million compared to $12.7 million for the three-month period ended December 29, 2007. Net income, as a percentage of sales, was 1.4% for the December 2008 quarter and 1.7% for the December 2007 quarter. Basic and diluted earnings per share for Class A Common Stock were $0.47 and $0.45, respectively, for the December 2008 quarter, compared to $0.54 and $0.52, respectively, for the December 2007 quarter. Basic and diluted earnings per share for Class B Common Stock were each $0.43 for the December 2008 quarter compared to $0.49 for the December 2007 quarter.
Cash provided by financing activities during the December 2008 quarter totaled $32.4 million. Principal payments on long-term debt and lines of credit were $16.0 million and dividend payments were $3.9 million. New borrowings, primarily secured by real estate and equipment, totaled $52.3 million.
At December 27, 2008, the Company had lines of credit with five banks totaling $185.0 million, of which $24.2 million was outstanding at December 27, 2008. The lines of credit mature between October 2009 and November 2010. The lines provide the Company with various interest rate options generally at rates less than the prime rate. The Company also has a facility with a bank to issue up to $30.0 million of unused letters of credit, of which $25.2 million of unused letters of credit were issued at December 27, 2008. This facility matures in April 2009. The Company is not required to maintain compensating balances in connection with these lines of credit. The lines of credit 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 lines of credit 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 documentation. The Company was in compliance with all financial covenants related to these lines of credit at December 27, 2008.
Since December 27, 1993, the Company has paid regular quarterly cash dividends of $0.165 (sixteen and one-half cents) per share on its Class A Common Stock and $0.15 (fifteen cents) per share on its Class B Common Stock for an annual rate of $0.66 and $0.60 per share, respectively.
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