Eastern U.S. supermarket chain Weis Markets (NYSE:WMK) posted second quarter profit that was essentially unchanged from the same quarter a year ago. The company increased its revenue, as well as same-store sales. The grocery store operator recently announced price cuts with a promise of maintaining these cuts for three months while competitors increase prices due to the rising cost of agriculture prices over all channels. (To help you battle rising food prices, check out 22 Ways To Fight Rising Food Prices.)
A Better Quarter Than It Appears
Revenue for the quarter was $676.7 million, an increase of 3.5% from the same quarter a year ago, when revenue was $653.7 million. Net income was essentially flat, at $20.7 million or 77-cents per share, up slightly from $20.5 million or 76-cents per share.
Weis Markets' CEO David Hepfinger pointed out that this quarter's results were achieved despite difficult comparisons against last year's record second quarter results, when the company posted a 35% earnings increase. Grand openings in three key markets for the Pennsylvania-based chain were cited as contributing to this year's quarter's positive results. Also, productivity increases as well as efficiencies helped achieve the results.
Food Inflation and Grocers
A recent report by the Bureau of Labor Statistics said that total expenditures for food at grocery stores rose 4.8 percent in the last year, as grocers passed on the price increases for food commodities such as corn, sugar, rice and oats. These food commodities have risen in price over 60% in the last 12 months. The 4.8% rise in the last 12 months is the largest increase since 2004, excluding the financial crisis of 2008-2009. While the increase during the financial crisis was a temporary spike, this increase has been steadily trending up in the last 12 months. The recent report of 4.8% follows a May report which had the annual increase at 4.4%. (If you are interested in investing in the commodities world, read How To Invest In Commodities.)
Pass It on
Most grocers and supermarket chains have been passing along the commodity price increases to consumers. Safeway (NYSE:SWY), Kroger (NYSE:KR) as well as higher-line Whole Foods Markets (NYSE:WFM) are three such chains whose stocks have benefited from this. Others, such as Winn-Dixie (Nasdaq:WINN) have been uneven, while Supervalu (NYSE:SVU) continues to struggle. Weis Markets, however, has been trying a different strategy. The company's recently-announced price cuts come with the pledge to hold the line on these new prices for three months. This is the seventh time in the past two-and-a-half years the company has done this.
The Bottom Line
Weis Markets carries no long-term debt and had cash and short-term investments totaling $139 million at the end of 2010. It has increased cash from operating activities in four of the last five years, and increased its free cash flow in each of the last five. It has increased revenue steadily from 2006 through 2010, from approximately $2.2 billion to $2.6 billion, despite going through the recession. Net income has risen in the last two years. Despite the steady, commendable results, Weis Markets' stock price has not quite seen the levels it reached prior to the recession. This is a company with a billion-dollar market cap that's not nearly as well-known as some of the bigger names in the space, but it manages to produce solid results in a difficult industry where margins are easily pressed. It's well positioned going forward to compete in its niche. (To learn more about grocery store stock, check out Evaluating Grocery Store Stocks.)
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