Ingles Markets Inc. Reports Operating Results (10-Q)
Ingles Markets Inc. has a market cap of $344.2 million; its shares were traded at around $14.04 with a P/E ratio of 9.7 and P/S ratio of 0.1. The dividend yield of Ingles Markets Inc. stocks is 4.6%. 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 3-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 $24.9 million and $23.6 million for the fiscal years ended December 26, 2009 and December 27, 2008, 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 $2.6 million and $3.3 million for the fiscal years ended December 26, 2009 and December 27, 2008, respectively.
Interest Expense. Interest expense increased $3.2 million for the three-month period ended December 26, 2009 to $16.2 million from $13.0 million for the three-month period ended December 27, 2008. Total debt at December 26, 2009 was $841.7 million compared to $753.4 million at December 27, 2008.
Net Income. Net income decreased $5.1 million or 45.9% for the three-month period ended December 26, 2009 to $6.0 million compared to $11.1 million for the three-month period ended December 27, 2008. Net income, as a percentage of sales, was 0.7% for the December 2009 quarter and 1.4% for the December 2008 quarter. Basic and diluted earnings per share for Class A Common Stock were $0.26 and $0.25, respectively, for the December 2009 quarter, compared to $0.47 and $0.45, respectively, for the December 2008 quarter. Basic and diluted earnings per share for Class B Common Stock were each $0.23 for the December 2009 quarter compared to $0.43 for the December 2008 quarter.
Cash used by financing activities during the December 2009 quarter totaled $11.4 million, compared with cash provided by financing activities (including new borrowings) totaling $32.4 million during the December 2008 quarter. For the December 2009 quarter, principal payments on long-term debt and lines of credit were $7.6 million and dividend payments were $3.9 million.
In May 2009, the Company issued $575.0 million aggregate principal amount of senior notes due in 2017 (the Notes) in a private placement. The Notes bear an interest rate of 8.875% per annum and were issued at a discount to yield 9.5% per annum. Note proceeds were used to pay off $349.8 million aggregate principal amount of senior subordinated debt maturing in 2011, pay off $45.3 million outstanding indebtedness under the Companys committed lines of credit, pay off $77.7 million of secured indebtedness, and pay costs related to the offering of the Notes. Remaining Note proceeds are being used for general corporate purposes, including current and future capital expenditures. As a result of these transactions, the Company has extended the average maturity of its total debt outstanding. The Company believes that availability of suitable financing may be sporadic in the future, as it has been for the past twelve to eighteen months, and opportunistically accessed the capital markets.
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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