VLGEA - Village Super Market: Expanding Profitability

Summary

• The company's profitability has significantly improved and same-store sales has been positive.
• However, its valuation is still depressed at 0.17 times sales which is one of the lowest in the sector.
• If the current profitability can continue the company would be trading at 8 times earnings.

Introduction

Since my last article on Village Super Market ( VLGEA ) the company has performed quite well. The company's profitability has significantly improved and same-store sales has been positive. However, its valuation is still depressed at .17 times sales which is one of the lowest in the sector and about the same as of my last article. Net income margin has increased since 2021 from .98% to 1.7% in 2022 and in the most recent quarter, it hit 2.2%. If the current profitability can continue the company would be trading at 8 times earnings. Given a pending recession, Village wouldn’t be a bad place to continue to park money in my view.

Highlights

This margin expansion is due to a combination of sales leverage and gross margin expansion. As you can see gross margin increased from 27.83% in 2021 to 28.73% as of Q1 2023 and Same-store sales is up 4.3% YOY in Q1 of 2023.

Source: Author created table. Data from company reports and price data from Google finance

Recession

In a recession, grocery stores tend to do well because people who would have gone out to eat instead decide they should eat at home to save money. For example, Kroger claims it’s 3x to 4x cheaper to eat from home than out. Looking at Village sales in the 09 recession, sales didn’t skip a beat increasing throughout.

Conclusion

Village Supermarkets is continuing on its path to increasing profitability by pulling the three levers of expanding private label sales, purchasing real estate, and automation. I continue to hold Village and think the current price is still attractive.

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