Ingles Markets: Earnings Update

| About: Ingles Markets, (IMKTA)
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Summary

The company reported record sales, making this its 50th year of consecutive sales growth.

Previously, profitability and interest expense have been points of concern for investors.

However, the company is showing improvements in both, potentially making it a more interesting investment opportunity.

Ingles Markets (NASDAQ:IMKTA), a smaller regional super market chain operating in the southeast U.S. region, reported record sales of $3.84 billion for fiscal 2014, making this its 50th consecutive year of sales growth. Revenue for the fourth quarter of their fiscal year increased 1.7% y/y to $964.84M, and net income for the fourth quarter rose 13.1% y/y to $17.6M. Diluted EPS for the company's Class A common stock was $0.79, representing a 16.2% y/y increase. Thus, the company has not only been able to sustainably grow, but it is now growing its earnings at an accelerated rate.

Digging further into the results, comparable-store sales rose 0.9% in the fiscal year and store count remained relatively flat with Ingles operating 202 stores at the end of fiscal year 2014 compared with 203 at the end of fiscal year 2013. Importantly, this indicates that organic growth at the individual store level is a key driver of Ingles' sales growth. Additionally, the company's continued expansion into expanded offerings, such as fuel, has been successful, with gallons and dollars of gasoline sold increased while the average per gallon sales price decreased slightly comparing fiscal 2014 with fiscal 2013.

For the full fiscal years, net income rose to $51.4 million in 2014 compared with $20.8 million in 2013. However, it is important to note that fiscal 2013 included a $26.2 million after tax charge for debt extinguishment costs. Removing the impact of this nonrecurring expense, we see that net income grew significantly slower than it first appears, but still at nearly a double-digit rate (9.4% y/y).

These costs were incurred as part of a refinancing of the Company's major credit arrangements on more favorable terms, and certainly help decrease interest expense. In fact, interest expense decreased over 20% ($12.5 million) for FY 2014, compared with FY 2013, due to the refinancing of existing debt at lower rates.

Overall, Ingles Markets delivered solid quarterly and fiscal year results with its latest earnings release. Despite the company's heavy debt load, its continued sales growth cannot be ignored. With the bottom line also showing solid growth and interest expense being cut significantly, management should be able to address some of the risks raised by the investment community, making this a stock worth investigating further.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.