Weis Markets' (NYSE:WMK) excellent balance sheet and conservative strategy will help the food retailer survive and possibly gain market share during the current economic downturn and fiscal crisis.
Weis Markets is a supermarket retailer that operates 156 stores in five states in the mid Atlantic region of the United States, with the vast majority in Pennsylvania. The company also owns 28 SuperPetz pet supply stores in 10 states.
Not Your Typical Retailer
Weis Markets is not like most other retailers that are always seeking to grow their store base no matter what the consequences. The store count has been flat for five years. Many retailers seek to expand as fast as the capital markets will let them, taking on too much debt in the process. When business turns down, the company can't service that debt, and bankruptcy or restructuring is the result. One retailer that recently suffered this fate was the Sharper Image (OTC:SHRPQ), which is set to emerge from bankruptcy this month. Linen N Things is another retailer that was taken private several years ago by private equity funds, and it has now announced that it is liquidating the chain.
Weis Markets pays a high dividend with a five-year average dividend yield of 3.4%.
| Weis Markets Dividend 2003-2007 |
|
Fiscal Year
|
Dividend
|
|
2007
|
$1.16
|
|
2006
|
$1.16
|
|
2005
|
$1.12
|
|
2004
|
$2.12
|
|
2003
|
$1.10
|
The company has high insider ownership with the Weis family owning 64% of the outstanding shares. The company also has an excellent balance sheet with no debt. This will help it during the economic downturn and credit crisis as some of its competitors may liquidate due to too much debt.
Although earnings were down 25% in the third fiscal quarter to $8.1 million, this was due in part to a jump in fuel prices of 55.2%. This should reverse and will not drag earnings down during the current quarter since oil and gasoline prices are falling sharply. Also, despite the weak economic environment, comparable store sales were up 6.2% in the quarter and 5.1% for the first nine months of the fiscal year.
Size isn't Everything
Some investors may be concerned that the company can’t compete with large food retailers like Wal-Mart (NYSE:WMT), Safeway (NYSE:SWY) or Kroger (NYSE:KR). While it is true that size is important in the food retailing business, Weis Markets has been in business since 1912. This is proof that it can compete against these giant retailers. Also, a review of gross and net margins demonstrates that Weis Markets is able to compete against these competitors.
|
Margins For Latest Fiscal Year
|
|
-
|
Gross Margin
|
Net Margin
|
|
Weis Markets
|
26.0%
|
2.2%
|
|
Wal-Mart
|
24.3%
|
3.4%
|
|
Kroger
|
23.4%
|
1.7%
|
|
Safeway
|
28.7%
|
2.1%
|
Bottom Line
Weis Markets has an excellent balance sheet and conservative business strategy. This will prove advantageous during the hard times ahead.
To learn more, check out Analyzing Retail Stocks.
