Weis Markets (NYSE:WMK) is a Pensylvania-based supermarket and pet store chain. The company offers all of the common goods found in most supermarkets, such as groceries, pharmacy services, beer and win, and general merchandise. Furthermore, many locations offer further convenience by having third party services such as in-store banks, post offices, and restaurants.
The company currently owns and operates 164 retail food stores and a chain of 25 SuperPetz pet supply stores. The company’s operations are reported as a single reportable segment.
As a retailer, Weis Markets' profitability is largely determined by the margins it earns on the products it sells. Since Weis primarily targets middle income customers, it has been reluctant to fully pass on wholesale price increases at the risk of losing business to competitors, but profit margins have suffered as a result. Additionally, since Weis uses its own fleet of trucks to deliver products to its stores, rising oil prices can increase operating costs. At the same time, lower fuel costs can lower their expenses.
Weis Markets does not have any long term debt on its balance sheet, indicating management's reluctance to issue debt to finance expansion.
For 2009, WMK's revenues increased from $2.42 billion in 2008 to $2.52 billion in 2009. The revenue increase marked the eight consecutive year in which revenues increased. As a result of the increase in revenues, WMK's net income was positively affected. In 2009, WMK's net income was $63 million, a substantial increase from the previous year's net income of $48 million.
Weis markets operates 164 grocery stores, 90% of which are located in Pennsylvania and Maryland. The majority of the stores operate under the names Weis Markets or Mr. Z's Food mart. In 2009, the supermarket outlets had groceries account for 54.4% of total 2009 revenues, 16.2% of total 2009 revenues, and produce account for 14.9%.
Weis Markets operates 25 Superpetz pet supply stores in the Southeastern United States. Superpetz comprised 1.7% of total revenue in fiscal 2009.
The company supports its retail outlets with a centrally located distribution center, transportation fleet, meat processing plant, ice cream plant, ice plant, and milk processing plant. By integrating its retail outlets with these facilities, Weis Markets is able to decrease the costs of producing private labels products and eliminate the added expenses of contracting transportation costs to third parties.
Wal-Mart had 147 retail stores (including Sam's Club), 4 distribution centers, and 50,526 associates in Pennsylvania alone. In markets that Wal-Mart has entered, grocery prices drop by an average of 10-15%. Additionally, Wal-Mart is able to drop grocery prices 10-30% drastically during promotional periods because it can remain profitable on extremely low margins due to its volume of sales. Weis has to compete with these low prices, which takes a bite out of margins.
Since Weis Markets uses its own transportation fleet, higher diesel prices will increase cost of goods sold and decrease operating income. Unlike other small supermarket chains, Weis Markets is spread over a large geographic area and therefore has relatively higher fuel costs. Weis Markets cannot raise retail food prices without the risk of losing customers, so it must absorb these price increases and lower margins.
By opening new stores, the company can mitigate the effects of smaller margins as the new stores will increase total revenue and net income. If there is not enough consumer demand for these new or remodeled retail outlets, the company will lose money on its investment. New stores will increase shipping and inventory costs, but increase the scale and volume of WMK. The new stores will need to increase revenue growth while selling high margin items in order to be successful. However, investors responded positively to the company's announcement of capital expenditure program, signifying that they believe the new and expanded stores will be successful.
Weis Markets faces competitive pressures from a number of different sources:
Wal-Mart Stores (WMT) Wal-Mart is the largest food retailer in the US with more than 3,550 stores and supercenters. Wal-Mart is able to provide low prices through its distribution network and economies of scale. Consumers turn to discount stores such as Wal-Mart when their disposable income falls.
Kroger Company (KR) Kroger is the second largest food retailer and largest operator of traditional supermarkets in the US, with 2,400 stores nationwide. The company competes with Weis Markets in Pennsylvania under the banner Turkey Hill.
Additionally, Weis Markets competes against several smaller neighborhood markets and niche stores, such as Whole Foods Market (WFMI) .
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