Weis Markets To Commit $80 Million For Capital Improvements In 2008 

May 2008

Weis Markets will invest $80 million this year on capital projects, vice chairman Jonathan Weis told shareholders at the company’s annual meeting held on April 23 at the regional chain’s headquarters in Sunbury, PA.

“For the coming year, we plan to invest nearly $80 million in our growth. We will target three quarters of this budget to our store base,” said Weis. “We currently have 19 major projects in various stages of planning, including three new stores, two replacement units, nine additions and five remodels.”

One of those new stores opened on April 24 in Hagerstown, MD; the other two new units will open in Pennsylvania during the next 12 months. The $80 million expenditure represents a 23 percent increase over 2007 when Weis’ cap-ex budget was $64.2 million.

Weis noted that he felt that 2008 will be a challenging year, with inflationary pressures contributing to a difficult economy. However, he pointed to a recent FMI study which noted that 69 percent of those consumers surveyed planned to eat out less this year and 56 percent of those polled were looking for economy, including more reliance on private label items.

Weis said that trend bodes well for his company, which carries 3,600 private label items that are marketed under three brands. Private label accounts for about 25 percent of all unit sales at the publicly-traded, but closely-held regional supermarket chain.

And the son of chairman Robert Weis also noted that the company’s fiscal diligence over the years has allowed the retail to self-finance new projects while remaining debt-free.

Later, Robert Weis introduced new president and chief operating officer Dave Hepfinger, who joined Weis in February after a 30 year career with Price Chopper. Hepfinger is slated to take over Weis’ chief executive post early next year when 43-year veteran Norm Rich retires.

Robert Weis thanked Rich for his many years of loyalty, dedication and friendship. Rich will remain on the Weis board after he steps down from his current CEO role at the end of the year.

When Rich did address the audience, he made it clear he was not happy with Weis’ 2007 results as earnings dipped from $56 million in 2006 to $51 million last year.

One factor contributing to the profit decline, according to Rich, was that wholesale prices continued to increase more quickly than the retail prices paid by consumers. According to a recent U.S. Bureau of Labor Statistics report, food-at-home price inflation increased 4.2 percent in 2007 while wholesale food inflation increased at a higher rate of 6.5 percent.

“Despite this pricing disparity, we maintained our retail prices at competitive levels. In this current market environment, we are cautious about passing on price increases to our customers,” said Rich. “This gap between our wholesale and retail pricing contributed significantly to the decline in our gross profit rate.”

“At a time when our customers were increasingly affected by the high gas prices and a weakening economy, our company’s sales increased 3.3 percent to $2.3 billion in 2007 while our comparable sales increased 3.5 percent,” said Rich.

A few days after the meeting, Rich’s comments accurately reflected Weis’ first quarter earnings, which were released on April 28.. The Sunbury, PA retailer reported that its net income declined from $13.4 million to $9.1 million for the period ended March 29, and basic and diluted earnings per share totaled $0.34 per share compared to $0.50 per share in the corresponding period in 2007.

That dip occurred despite Weis’ overall first quarter sales increasing 4.2 percent to $595.7 million while its comparable store sales were up 3.9 percent when measured against the same period a year ago.

“The first quarter was the perfect retail storm with a combination of factors significantly impacting our gross margins,” said Rich. “We continue to see considerable wholesale food inflation. Food commodity prices are increasing at a faster pace than retail prices paid by our customers. At the same time, due to an uncertain economy and the high cost of gasoline, our customers are more cautious in their spending. In addition, we continue to maintain our aggressive pricing and promotional program throughout our markets.”

Weis said its earnings were also impacted by increases of 35.4 percent in diesel fuel costs and 18.1 percent in higher health insurance costs