WMK Weis Markets Inc

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 30, 2023

OR

[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to_________

Commission File Number 1-5039

WEIS MARKETS, INC.

(Exact name of registrant as specified in its charter)

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Securities registered pursuant to Section 12(b) of the Act:

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Securities registered pursuant to Section 12(g) of the act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant has filed a report on and attestation to its Management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. [X]

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. [ ]

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

The aggregate market value of Common Stock held by non-affiliates of the Registrant is approximately $607,000,000 as of July 1, 2023 the last business day of the most recently completed second fiscal quarter.

Shares of common stock outstanding as of February 28, 2024 - 26,898,443.

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WEIS MARKETS, INC.

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WEIS MARKETS, INC.

PART I

Item 1.   Business:

Weis Markets, Inc. (Weis Markets or the Company) is a Pennsylvania business founded by Harry and Sigmund Weis in 1912 and incorporated in 1924. The Company is engaged principally in the retail sale of food in Pennsylvania and surrounding states. There was no material change in the nature of the Company’s business during fiscal 2023. The Company’s stock has been traded on the New York Stock Exchange since 1965 under the symbol “WMK.” The Weis family currently owns approximately 65% of the outstanding shares. Jonathan H. Weis serves as Chairman of the Board of Directors, President and Chief Executive Officer.

The Company’s retail food stores sell groceries, dairy products, frozen foods, meats, seafood, fresh produce, floral, pharmacy services, deli products, prepared foods, bakery products, beer and wine, fuel and general merchandise items, such as health and beauty care and household products. The store product selection includes national, local and private brands including natural, gluten-free and organic varieties. The Company advertises its products and promotes its brand through digital and printed circulars; television ads; radio ads; e-mail blasts; and on-line via its web site, social media and mobile applications. The Company promotes competitive pricing by using Everyday Lower Price; Low Price Guarantee; Low, Low Price; 3 Day Sale; senior and military discounts; and Loyalty programs. The Loyalty program includes reward points that may be redeemed for discounts on items in store, at the Company’s fuel stations or at one of its third-party fuel station partners. The Company currently owns and operates 197 retail food stores many of which have on-line order customer service. The Company’s operations are reported as a single reportable segment. The majority of the Company’s revenues are generally not seasonal in nature. However, revenues tend to be higher during the major holidays throughout the year. Additionally, significant inclement weather systems, particularly winter storms, tend to affect sales trends.

The following table provides additional detail on the percentage of consolidated net sales contributed by product category for fiscal years 2023, 2022 and 2021, respectively:

At the end of 2023, Weis Markets, Inc. operated 3 stores in Delaware, 49 stores in Maryland, 6 stores in New Jersey, 9 stores in New York, 118 stores in Pennsylvania, 9 stores in Virginia and 3 stores in West Virginia, for a total of 197 retail food stores operating under the Weis Markets trade name.

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Item 1.   Business: (continued)

All retail food store locations operate as conventional supermarkets. The retail food stores range in size from 8,000 to 71,000 square feet, with an average size of approximately 49,000 square feet. The Company’s store fleet includes a variety of sizes with a few locations in operation since the 1950s; all stores are branded Weis Markets and provide the same basic offerings scaled to the size of each store. The following summarizes the number of stores by size categories as of year-end:

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The Company believes that opening new stores and remodeling current stores are vital for future Company growth. The location and appearance of its stores are important components of attracting new and retaining current customers. On an average basis, the Company has two to three new/relocated stores in the process of being developed and dedicates one third of its capital expenditure budget to new stores annually, excluding acquisitions. Significant labor and supply chain disruptions in 2022 and 2023 resulted in multiple store development and construction projects (new, relocated, addition, major remodel) to be carried over for completion in 2024 and 2025 as supply chain conditions stabilize. Generally, another fifteen to twenty percent of the capital expenditure budget is dedicated to store remodels while the remainder is attributable to supply chain, technology, smaller in-store sales-driven projects, store maintenance and store support function expenditures.

The following schedule shows the changes in the number of retail food stores, total square footage and store additions/remodels as of year-end:

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Utilizing its own strategically located distribution center and transportation fleet, Weis Markets self distributes approximately 56% of product supplied to stores with the remaining being supplied by direct store vendors and regional wholesalers. In addition, the Company has three manufacturing facilities which process milk, ice cream and fresh meat products. The corporate offices are located in Sunbury, Pennsylvania where the Company was founded in 1912.

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Item 1.   Business: (continued)

The Company strives to be good stewards of the environment and makes this an important part of its overall mission. Its sustainability strategy operates under four key pillars: green design, natural resource conservation, food and agricultural impact and community impact. The goal of the sustainability strategy is to reduce the Company’s overall carbon footprint by reducing greenhouse gas emissions and reducing the impact on the environment. The Company continues to be a member of the EPA GreenChill program for advancing environmentally beneficial refrigerant management systems. The Company currently has thirteen stores certified under this program and plans to expand this program to more stores. Since 2017, the Company has replaced 96% of its stores fluorescent lighting with more energy efficient and environmentally friendly LED lighting. The Company continues to emphasize recycling in all areas, most recently noting a decrease in store waste where the Company has diverted approximately 43 thousand tons of waste from landfills. These statistics and more can be found in the Company’s most recently published sustainability report, linked below in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The Company operates in a highly competitive marketplace. The number and the variety of competitors vary by market. The Company’s principal competition consists of international, national, regional and local food chains, as well as independent food stores. The Company also faces substantial competition from convenience stores, membership warehouse clubs, specialty retailers, supercenters and large-scale drug and pharmaceutical chains. This competition is augmented by the food retail industry’s expansion into the online market in recent years. The Company continues to effectively compete by offering a strong combination of value, quality and service. The Company has provided additional product offerings and customer conveniences such as “Weis 2 Go Online,” currently offered at 188 store locations. “Weis 2 Go Online” allows the customer to order on-line and have their order delivered or picked up at an expedient store drive-thru. The Company also currently offers home delivery to customers in all 197 of its locations via multiple grocery delivery partners.

Human Capital. The Company believes that talent is a business differentiator and is committed to creating a sustainable competitive advantage through the selection, development and promotion of talented, highly motivated people. The Company believes that establishing a learning culture supports its commitment to be an employer of choice and helps drive customer engagement with its associates. Improvements in the Company’s talent management and development will help drive business impact while providing internal career opportunities. The Company continues to grow leaders at every level throughout the organization by creating a culture of mentoring, coaching and leveraging on-the-job assignments for continued development. The Company believes that a strong employment brand is necessary to attract and retain top talent and affects its ability to compete and execute strategic plans. The Company will continue to assess and upgrade underlying technologies to support human capital development as a strategic imperative for future growth.

The Company currently employs approximately 23,000 full-time and part-time associates. Approximately 95% of Weis Markets associates are paid an hourly wage.

Trade Names and Trademarks. The Company has invested significantly in the development and protection of “Weis Markets” both as a trade name and a trademark and considers it to be an important asset. The Company is the exclusive licensee of nearly 125 trademarks registered and/or pending in the United States Patent and Trademark Office from WMK Holdings, Inc., including trademarks for its product lines and promotions such as Weis, Weis 2 Go, Weis Great Meals Start Here, Weis Gas-n-Go and Weis Nutri-Facts. Each trademark registration is for an initial period of 10 years and may be renewed so long as it is in continued use in commerce.

The Company considers its trademarks to be of material importance to its business and actively defends and enforces its rights.

The Company maintains a corporate web site at www.weismarkets.com/investor-relations. The Company makes available, free of charge, on the “Investor Relations” page of its web site, its Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after the Company electronically files such

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Item 1.   Business: (continued)

material or furnishes it to the U.S. Securities and Exchange Commission (SEC) by clicking on the “SEC Information” link.

The Company’s Corporate Governance materials can be found on the “Governance” page of its web site. These materials include the Corporate Governance Guidelines; the Charters of the Audit, Compensation and Disclosure Committees; and both the Code of Business Conduct and Ethics and the Code of Ethics for the CEO and CFO. A copy of the foregoing corporate governance materials is available upon written request to the Company’s principal executive offices.

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Item 1a.   Risk Factors:

Competitive and Reputational Risks

The Company’s industry is highly competitive. If the Company is unable to compete effectively, the Company’s financial condition and results of operations could be materially affected.

The retail food industry is intensely price competitive, and the competition the Company encounters may have a negative impact on product retail prices. The operating environment continues to be characterized by aggressive expansion, entry of non-traditional competitors, market consolidation and increasing fragmentation of retail and online formats. The introduction of on-line food retail in recent years has augmented competition in industry. The financial results may be adversely impacted by a competitive environment that could cause the Company to reduce retail prices without a reduction in its product cost to maintain market share; thus, reducing sales and gross profit margins.

Food safety issues could result in the loss of consumer confidence in the Company.

Customers count on the Company to provide them with safe and wholesome food products. Concerns regarding the safety of food products sold in its stores could cause shoppers to avoid purchasing certain products from the Company, or to seek alternative sources of supply for all of their food needs, even if the basis for the concern is outside of the Company’s control. A loss in confidence on the part of its customers would be difficult and costly to reestablish. As such, any issue regarding the safety of any food items sold by the Company, regardless of the cause, could have a substantial and adverse effect on operations.

The Company may be unable to retain key management personnel.

The Company’s success depends to a significant degree upon the continued contributions of senior management. The loss of any key member of management may prevent the Company from implementing its business plans in a timely manner. In addition, employment conditions specifically may affect the Company’s ability to hire and train qualified associates.

Financial, Investments and Infrastructure Risks

The failure to execute expansion plans could have a material adverse effect on the Company’s business and results of its operations.

Circumstances outside the Company’s control could negatively impact anticipated capital investments in store, distribution and manufacturing projects, information technology and equipment. The Company cannot determine with certainty whether its new or acquired stores will meet expected benefits including, among other things, operating efficiencies, procurement savings, innovation, sharing of best practices and increased market share that may allow for future growth. Achieving the anticipated benefits may be subject to a number of significant challenges and uncertainties, including, without limitation, the possibility of imprecise assumptions underlying expectations regarding potential

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Item 1a.   Risk Factors: (continued)

synergies and the integration process, unforeseen expenses and delays diverting Management’s time and attention and competitive factors in the marketplace.

The Company’s investment portfolio may suffer losses from changes in market interest rates and changes in market conditions which could adversely affect results of operations and liquidity.

The Company’s marketable securities consist of corporate and municipal bonds, commercial paper and equity securities. These investments are subject to general credit, liquidity, market and interest rate risks. As a result, the Company may experience a reduction in value or loss of liquidity from investments, which may have a negative impact on the Company’s financial condition and results of operations.

Unexpected factors affecting self-insurance claims and reserve estimates could adversely affect the Company.

The Company uses a combination of insurance and self-insurance to provide for potential liabilities for workers’ compensation, general liability, vehicle accident, property and associate medical benefit claims. Management estimates the liabilities associated with the risks retained by the Company, in part, by considering historical claims experience, demographic and severity factors and other actuarial assumptions which, by their nature, are subject to a high degree of variability. Any projection of losses concerning workers’ compensation and general liability is subject to a high degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns.

Information Security, Cybersecurity and Data Privacy Risks

Disruptions or cybersecurity breaches in the Company’s information technology systems could adversely affect results of operations.

The Company’s business is highly dependent on complex information technology systems that are vital to its continuing operations. If the Company was to experience difficulties maintaining existing systems or implementing new systems, significant losses could be incurred due to disruptions in its operations. Additionally, these systems contain valuable proprietary data as well as receipt and storage of personal information about its associates and customers, in particular electronic payment data and personal health information that, if breached, would have an adverse effect on the Company. Such an occurrence could adversely affect the Company’s reputation with its customers, associates, and vendors, as well as the Company’s financial condition, results of operations, and liquidity with potential litigation against the Company or the imposition of penalties.

Supply Chain and Third-Party Risks

The Company is affected by certain operating costs which could increase or fluctuate considerably, and other potential disruptions.

Associate expenses contribute to the majority of the Company’s operating costs. The Company’s financial performance is potentially affected by increasing wage and benefit costs, a competitive labor market, regulatory wage increases and the risk of unionized labor disruptions of its non-union workforce. The Company’s profit is particularly sensitive to the cost of oil. Oil prices directly affect the Company’s product transportation costs, as well as its utility and petroleum-based supply costs. It also affects the costs of its suppliers, which impacts its cost of goods. Additionally, disruptions to the Company’s distribution of food products pose significant risks to the Company's operations. Various factors such as adverse weather conditions, food safety, and civil unrest could all contribute to such disruptions.

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Item 1a.   Risk Factors: (continued)

Changes in vendor promotions or allowances, including the way vendors target their promotional spending, and the Company’s ability to effectively manage these programs could significantly impact margins and profitability.

The Company cooperatively engages in a variety of promotional programs with its vendors. As the parties assess the results of specific promotions and plan for future promotions, the nature of these programs and the allocation of dollars among them changes over time. The Company manages these programs to maintain or improve margins while at the same time increasing sales. A reduction in overall promotional spending or a shift by vendors in promotional spending away from certain types of promotions that the Company and its customers have historically utilized could have a significant impact on profitability.

Legal, Regulatory and Other External Risks

The trade area of the Company is located within a region and is subject to the economic, social and climate variables of that region.

The majority of the Company’s stores are concentrated in central and northeast Pennsylvania, central Maryland, suburban Washington, DC and Baltimore regions and New York’s Southern Tier. Changes in economic and social conditions in the Company’s operating regions, including fluctuations in the inflation rate along with changes in population and employment and job growth rates and changes in government benefits such as SNAP/EBT or child care credits, affect customer shopping habits. Business disruptions due to weather and catastrophic events may also affect our business. The Company’s geographic regions could receive an extreme variance in the amount of annual snowfall that may materially affect sales and expense results.

Various aspects of the Company’s business are subject to federal, state and local laws and regulations.

The Company is subject to various federal, state and local laws, regulations and administrative practices that affect the Company’s business. The Company must comply with numerous provisions regulating health and sanitation standards, food labeling, equal employment opportunity, minimum wages and licensing for the sale of food, drugs and alcoholic beverages. The Company’s compliance with these regulations may require additional capital expenditures and could adversely affect the Company’s ability to conduct the Company’s business as planned. Management cannot predict either the nature of future laws, regulations, interpretations or applications, or the effect either additional government regulations or administrative orders, when and if promulgated, or disparate federal, state, and local regulatory schemes would have on the Company’s future business. They could, however, require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling and/or scientific substantiation. Any or all of such requirements could have an adverse effect on the Company’s financial condition, results of operations and liquidity.

Changes in tax laws may result in higher income tax.

The Company’s future effective tax rate may increase from current rates due to changes in laws and the status of pending items with various taxing authorities. Currently, the Company benefits from a combination of its corporate structure and certain state tax laws.

The Company is a controlled Company due to the common stock holdings of the Weis family.

The Weis family’s share ownership represents approximately 65% of the combined voting power of the Company’s common stock as of December 30, 2023. As a result, the Weis family has the power to elect a majority of the Company’s directors and approve any action requiring the approval of the shareholders of the Company, including adopting certain amendments to the Company’s charter and approving mergers or sales of substantially all of the Company’s assets. Currently, one of the Company’s five directors is a member of the Weis family.

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Item 1a.   Risk Factors: (continued)

The Company’s business and operations, and the operations of the Company’s suppliers, have been, and may in the future be adversely affected by epidemics or pandemics such as the novel Coronavirus (COVID-19) pandemic outbreak.

The Company may face risks related to health epidemics and pandemics or other outbreaks of communicable diseases. The global spread of COVID-19 created significant volatility, uncertainty and economic disruption. The Company’s business was deemed essential during the novel coronavirus pandemic and the Company is committed to maintaining a safe work and shopping environment. Management cannot assess the ultimate economic impact to the Company, which will be determined by, among other things, the length of time that such circumstances occur, nor can the Company predict the effects of governmental and public responses to changing conditions. The risks and uncertainties surrounding the coronavirus pandemic, as well as any future pandemics, are broad.

Item 1b.   Unresolved Staff Comments:

There are no unresolved staff comments.

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Item 1c. Cybersecurity:

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Risk Management and Strategy

The Company utilizes information systems to support a variety of business processes and activities in its operations. These systems may be subject to cyber-based attacks or breaches. Some examples of the cybersecurity threats that could negatively impact the Company are credit card skimmers, denial of service attacks, excessive port scans, firewall breach and computer virus outbreak.

Cybersecurity risk management is part of Management’s annual risk assessment program. In order to manage the risks associated with cybersecurity threats, the Company maintains a risk-based cybersecurity program consisting of processes, technologies, and controls to assess, identify and manage material risks from cybersecurity threats.

While the Company's information systems are exposed to cybersecurity threats and risks, the Company has not experienced any material cybersecurity incidents affecting its business strategy, results of operations, or financial condition, and any costs or operational impacts related to cybersecurity incidents were immaterial during the period presented.

For additional information related to the risks associated with cybersecurity threats, refer to the Information Security, Cybersecurity and Data Privacy Risks section of Item 1a. Risk Factors.

Governance

Board of Directors Oversight

The Company’s Board of Directors is responsible for providing oversight and strategic guidance to management to support the long-term interests of the Company's shareholders. The Audit Committee is the lead committee of the Board of Directors responsible for oversight of the Company’s risk-based cybersecurity program and bears the primary responsibility for this aspect of the business. As part of this responsibility, the Audit Committee of the Board of Directors annually reviews the Company's Information Security Incident Response Plan.

On a quarterly basis cybersecurity incidents are summarized and reported to the Audit Committee of the Board of Directors which cover any identified cybersecurity incidents, results of third-party vulnerability testing, and key developments in policies.

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Item 1c. Cybersecurity: (continued)

Management’s Role Managing Risk

The Company’s cybersecurity risk management is part of the Company's Information Security Office, led by the Chief Information Officer. In order to manage the risks associated with cybersecurity threats, the Company has implemented an Information Security Incident Response Plan.

The Company engages with a range of third-party experts, including cybersecurity assessors, consultants, and auditors in evaluating and testing its risk management systems. These relationships enable Management to leverage specialized knowledge and insights with respect to the Company’s cybersecurity strategies and processes.

The Company's Information Security Incident Response Plan includes detailed processes and controls related to cybersecurity awareness training for employees, phishing simulations, backup and recovery, response planning, vulnerability management and endpoint protection as well as ongoing cybersecurity requirements for third-party service providers. The framework is regularly reviewed, assessed, and updated. This framework is designed to mitigate risks related to data breaches or other security incidents originating from third parties.

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Item 2.   Properties:

As of December 30, 2023, the Company owned and operated 101 of its retail food stores and leased and operated 96 stores under operating leases that expire at various dates through 2036. The Company owns all trade fixtures and equipment in its stores and several parcels of vacant land, which are available as locations for possible future stores or other expansion.

The Company owns and operates one distribution center in Milton, Pennsylvania of approximately 1.3 million square feet, and one in Northumberland, Pennsylvania totaling approximately 76 thousand square feet. The Company also owns one warehouse complex in Sunbury, Pennsylvania totaling approximately 535 thousand square feet. The Company utilizes 258 thousand square feet of its Sunbury location to operate its three manufacturing facilities which process milk, ice cream and fresh meat products.

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Item 3.   Legal Proceedings:

Neither the Company nor any subsidiary is presently a party to, nor is any of their property subject to, any pending legal proceedings, other than routine litigation incidental to the business that would not have a material adverse effect on the financial results. The Company estimates any exposure to these legal proceedings and establishes accruals for the estimated liabilities, where it is reasonably possible to estimate and where an adverse outcome is probable.

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Item 4. Mine Safety Disclosures:

Not Applicable.

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Information about Our Executive Officers

The following sets forth the names and ages of the Company’s executive officers as of February 28, 2024, indicating all positions held during the past five years:

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PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities:

The Company’s stock is traded on the New York Stock Exchange (ticker symbol WMK). The approximate number of shareholders, including individual participants in security position listings on February 28, 2024 was 11,987.

The following line graph compares the yearly percentage change in the cumulative total shareholder return on the Company’s common stock against the cumulative total return of the S&P Composite-500 Stock Index and the cumulative total return of a Company-selected group index that the Company deems most properly represents its “Peer Group”, for the period of five years. The Peer group is made up of five retail grocers that the Company feels most closely relate to its size and business profile, including one national grocer the Company believes to be an industry market leader. The companies making up the Peer Group, in no particular order, are, Ingles Markets, Inc.; Village Super Market, Inc.; Smart & Final Stores, Inc. (included through June 20, 2019 when it was acquired by Apollo Global Management, LLC); Sprouts Farmers Market, Inc. and The Kroger Company. The graph depicts $100 invested at the close of trading on the last trading day preceding the first day of the fifth preceding year in Weis Markets, Inc. common stock, S&P 500, and the Peer Group. The cumulative total return assumes reinvestment of dividends.

Comparative Five-Year Total Returns

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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations:

Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand Weis Markets, Inc., its operations and its present business environment. The MD&A is provided as a supplement to and should be read in conjunction with the Consolidated Financial Statements and the accompanying notes thereto contained in “Item 8. Financial Statements and Supplementary Data” of this report. The following analysis should also be read in conjunction with the Financial Statements included in the Quarterly Reports on Form 10-Q and the Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission, as well as the cautionary statement captioned “Forward-Looking Statements” immediately following this analysis. This overview summarizes the MD&A, which includes the following sections:

Company Overview

General

Weis Markets is a conventional supermarket chain that operates 197 retail stores with approximately 23 thousand associates located in Pennsylvania and six surrounding states: Delaware, Maryland, New Jersey, New York, Virginia, and West Virginia. Approximately 95% of Weis Markets associates are paid an hourly wage. Its products sold include groceries, dairy products, frozen foods, meats, seafood, fresh produce, floral, pharmacy services at certain locations, deli products, prepared foods, bakery products, beer and wine, fuel, and general merchandise items, such as health and beauty care and household products. The store product selection includes national, local and private brands and the Company promotes competitive pricing by using Everyday Lower Price; Low Price Guarantee; Low, Low Price; 3 Day Sale; senior and military discounts; and Loyalty programs. The Loyalty program includes reward points that may be redeemed for discounts on items in store, at one of the Company’s fuel stations or one of its third-party fuel station partners.

Utilizing its own strategically located distribution center and transportation fleet, Weis Markets self distributes approximately 56% of product supplied to stores with the remaining being supplied by direct store vendors and regional wholesalers. In addition, the Company has three manufacturing facilities which process milk, water, ice, ice cream and fresh meat products. The corporate offices are located in Sunbury, Pennsylvania where the Company was founded in 1912.

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Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

Company Overview (continued)

The Company has provided additional product offerings and customer conveniences such as “Weis 2 Go Online,” currently offered at 188 store locations. “Weis 2 Go Online” allows the customer to order on-line and have their order delivered or picked up at an expedient store drive-thru. The Company also currently offers home delivery to customers in all 197 of its locations via multiple grocery delivery partners.

Strategic Imperatives

The following strategic imperatives continue to be focused upon by the Company to attempt to ensure the success of the Company in the coming years:

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Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

Company Overview (continued)

Results of Operations

Two-Year Stacked Comparable Store Sales Analysis

Management is providing Comparable Store Sales Two-Year Stacked analysis, a non-GAAP measure, because Management believes this metric is useful to investors and analysts. A Comparable Store Sales Two-Year Stacked analysis presents a comparison of results and trends over a longer period of time to demonstrate the effect of the novel coronavirus pandemic on the operating results of the Company. Information presented in the tables below is not intended for use as an alternative to any other measure of performance. It is not recommended that this table be considered a substitute for the Company’s operating results as reported in accordance with GAAP.

Year-over-year and sequential comparisons are the primary calculations used to analyze operating results, however, due to significant fluctuations caused by the COVID-19 pandemic, inflation and declining government benefits, Management believes it is necessary to provide a Two-Year Stacked Comparable Store Sales analysis. The following table provides the two-year stacked comparable store sales, excluding fuel and adjusted for an additional week in 2022 for the fiscal years ended December 30, 2023, and December 31, 2022, as well as fiscal years ended December 31, 2022, and December 25, 2021, respectively.

The 2023 and 2021 years were comprised of 52 weeks, whereas the 2022 year was comprised of 53 weeks.

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Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

Results of Operations (continued)

When calculating the percentage change in comparable store sales, the Company defines a new store to be comparable after it has been in operation for five full fiscal quarters. Relocated stores and stores with expanded square footage are included in comparable store sales since these units are located in existing markets and are open during construction. Planned store dispositions are excluded from the calculation. The Company only includes retail food stores in the calculation.

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Analysis of Consolidated Statements of Income

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Net Sales

Individual Year-Over-Year Analysis of Sales

The 2023 and 2021 years were comprised of 52 weeks, whereas the 2022 year was comprised of 53 weeks.

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When calculating the percentage change in comparable store sales, the Company defines a new store to be comparable when it has been in operation after five full fiscal quarters. Relocated stores and stores with expanded square footage are included in comparable store sales since these units are located in existing markets and are open during construction. Planned store dispositions are excluded from the calculation. The Company only includes retail food stores in the calculation.

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Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

Results of Operations (continued)

Net Sales (continued)

According to the latest U.S. Bureau of Labor Statistics’ report, the annual Seasonally Adjusted Food-at-Home Consumer Price Index increased 5.0% in 2023, 11.4% in 2022, 3.5% in 2021. Even though the U.S. Bureau of Labor Statistics’ index rates may be reflective of a trend, it will not necessarily be indicative of the Company’s actual results. According to the U.S. Department of Energy, the 52-week average price of gasoline in the Central Atlantic States decreased 10.1%, or $0.42 cents per gallon, in 2023 compared to the 53-week average in 2022. The 53-week average price of gasoline in the Central Atlantic States, according to the U.S. Department of Energy, increased 31.4%, or $1.00 per gallon, in 2022 compared to the 52-week average in 2021.

Comparable store sales, excluding fuel and adjusted for the 53rd week in 2022, increased for all years presented. Comparable store sales, including fuel, decreased year over year. On a comparable store sales basis pharmacy services increased in sales. Comparable store sales, adjusted for an additional week in 2022 increased 2.3% excluding fuel and 1.7% including fuel for 2023 compared to 2022. The Company has provided additional product offerings and customer conveniences such as “Weis 2 Go Online,” currently offered at 188 store locations. “Weis 2 Go Online” allows the customer to order on-line and have their order delivered or picked up at an expedient store drive-thru. The Company also currently offers home delivery to customers in all 197 of its locations via multiple grocery delivery partners.

During 2023, the Company’s net sales were negatively impacted by declining government benefits. Although the Company experienced retail inflation and deflation in various commodities for the periods presented, the Company anticipates overall product costs to increase given the recent inflationary indicators in the food retail industry. Management cannot accurately measure the full impact of inflation or deflation on retail pricing due to changes in the types of merchandise sold between periods, shifts in customer buying patterns and the fluctuation of competitive factors. Management remains confident in its ability to generate long-term sales growth in a highly competitive environment, but also understands some competitors have greater financial resources and could use these resources to take measures which could adversely affect the Company’s competitive position.

Cost of Sales and Gross Profit

Cost of sales consists of direct product costs (net of discounts and allowances), net advertising costs, warehousing costs, transportation costs, as well as manufacturing facility costs. Increased sales volume resulted in an increase in cost of sales. Both direct product cost and distribution cost increase when sales volume increases.

Gross profit rate was 24.7% in 2023, 25.2% in 2022, 26.4% in 2021. The decrease in gross profit rate is attributable to increased pharmacy and fuel sales, which have a lower gross profit margin than grocery sales; and higher product and supply chain costs.

The Company experienced unfavorable non-cash LIFO inventory valuation adjustments, decreasing gross profit by $6.7 million, $29.2 million and $4.0 million in 2023, 2022 and 2021, respectively.

The Company has experienced retail inflation and deflation in various commodities for the periods presented. Management cannot accurately measure the full impact of inflation or deflation on retail pricing due to changes in the types of merchandise sold between periods, shifts in customer buying patterns and the fluctuation of competitive factors.

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Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

Results of Operations (continued)

Operating, General and Administrative Expenses

The majority of the expenses were driven by increased sales volume.

Employee-related costs such as wages, employer paid taxes, health care benefits and retirement plans, comprise approximately 59.9% of the total “Operating, general and administrative expenses.” As a percent of sales, direct store labor increased 0.1% in 2023 compared to 2022 and decreased 0.5% in 2022 compared to 2021. Direct store labor expenses increased slightly in 2023 compared to 2022 due to flat net sales results for the same period. Direct store labor increased in 2022 compared to 2021, as sales increases outpaced the labor expense increase causing the rate to fall, primarily due to the fixed component of store labor. Management continues to monitor store labor efficiencies and develop labor standards to reduce costs while maintaining the Company’s customer service expectations. During 2023, the Company completed a multi-year initiative to install or upgrade self-checkouts in its stores in response to customer preference and labor supply, including adding convertible dual-use checkout lanes.

The Company’s self-insured health care benefit expenses decreased by 18.0% and 8.5% in 2023 and 2022, respectively. As a percent of sales, the Company’s self-insured health care benefit expenses decreased by 0.1% and 0.2%, in 2023 and 2022, respectively.

Depreciation and amortization expense charged to “Operating, general and administrative expenses” was $98.0 million, or 2.1% of net sales, for 2023 compared to $94.6 million, or 2.0% of net sales, for 2022 compared to $93.8 million, or 2.2% of net sales, for 2021. See the Liquidity and Capital Resources section for further information regarding the Company’s capital expenditure program.

A breakdown of the material increases (decreases) as a percent of sales in "Operating, general and administrative expenses" is as follows:

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The majority of the increases in other expenses from 2022 to 2023 were technology expenses due to more third-party information technology subscription and consulting services and less asset disposals and insurance proceeds. The majority of the increases in other expenses from 2021 to 2022 were higher financial service fees due to more sales transaction dollars paid with debit and credit cards and more third-party information technology subscription and consulting services.

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Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

Results of Operations (continued)

Provision for Income Taxes

The effective income tax rate was 29.2%, 22.1% and 26.6% in 2023, 2022, and 2021, respectively. The effective income tax rate differs from the federal statutory rate of 21% primarily due to state taxes as well as nondeductible employee-related expenses. The Company reduced its provision for income taxes by $5.5 million in 2022 primarily due to the effects of Pennsylvania House Bill 1342 which was enacted on July 8, 2022. The bill made significant changes to the Commonwealth’s corporate income tax laws which included lowering the tax rate gradually from 9.99% in 2022 to 4.99% in 2031.

Liquidity and Capital Resources

The primary source of cash is cash flows generated from operations. In addition, the Company has access to a revolving credit agreement entered into on September 1, 2016, and amended on September 29, 2023, with Wells Fargo Bank, N.A. (the “Credit Agreement”). The Credit Agreement matures on October 1, 2027, and provides for an unsecured revolving credit facility with an aggregate principal amount not to exceed $30.0 million with an additional discretionary amount available of $70.0 million. As of December 30, 2023, the availability under the revolving credit agreement was $22.3 million with $7.7 million of letters of credit outstanding. The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company. The Company has not had an obligation on the Credit Agreement since the second quarter of 2018.

The Company’s investment portfolio consists of high-grade bonds with maturity dates between one and 30 years and four high yield, large capitalized public company equity securities. The portfolio totaled $226.0 million as of December 30, 2023. Management anticipates maintaining the investment portfolio but has the ability to liquidate if needed. See “Item 7a. Quantitative and Qualitative Disclosures about Market Risk” for more details regarding the Company’s market risk.

The Company’s capital expenditure program includes the construction of new superstores, the expansion and remodeling of existing units, the acquisition of sites for future expansion, new technology purchases and the continued upgrade of the Company’s distribution facilities and transportation fleet. Management continues to reinvest in its long-term capital expenditure program including plans to complete multiple carryover projects from 2022 and 2023 that were delayed due to labor and supply chain disruptions. The Company anticipates to fund the long-term capital expenditure program, the acquisition of retail stores, the construction of additional distribution facilities, repurchases of common stock, and cash dividends on common stock through its cash and cash equivalents, marketable securities, cash flows from operating activities, and revolving credit agreement.

The Board of Directors’ 2004 resolution authorizing the repurchase of up to one million shares of the Company’s common stock has a remaining balance of 752,468 shares.

Quarterly Cash Dividends

Total cash dividend payments on common stock, on a per share basis, amounted to $1.36 in 2023, $1.30 in 2022 and $1.25 in 2021. The Company increased its quarterly dividend from 32 cents per share to 34 cents per share in the fourth quarter of 2022. The Company expects to continue paying regular cash dividends on a quarterly basis. However, the Board of Directors reconsiders the declaration of dividends quarterly. The Company pays these dividends at the discretion of the Board of Directors and the continuation of these payments and the amount of the dividends depends upon the financial condition of the Company, results of operations and other factors which the Board of Directors deems relevant.

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Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

Results of Operations (continued)

Cash Flow Information

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Operating

Cash flows from operating activities decreased in 2023 as compared to 2022 and 2021, respectively. The decrease in 2023 from 2022 is due to lower net income and in 2022 from 2021 is due to increases in inventory.

Investing

Property and equipment purchases totaled $104.0 million in 2023, $122.2 million in 2022 and $151.8 million in 2021. As a percentage of sales, capital expenditures totaled 2.2% in 2023, 2.5% in 2022 and 3.6% in 2021. Multiple projects from 2022 and 2023 are expected to be completed in 2024 due to labor and supply chain disruptions. The Company significantly increased its marketable securities holdings in 2023 by approximately $39.5 million and in 2022 the Company maintained its marketable securities portfolio.

Financing

The Company paid dividends of $36.6 million in 2023, $35.0 million in 2022 and $33.6 million in 2021. The Company increased its quarterly dividend from 32 cents per share to 34 cents per share in the fourth quarter of 2022. The Company previously increased its quarterly dividend from 31 cents per share to 32 cents per share in the fourth quarter of 2021.

Contractual Obligations

The following table represents scheduled maturities of the Company’s long-term contractual obligations as of December 30, 2023.

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Off-Balance Sheet Arrangements

The Company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, results of operations or cash flows.

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Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

Critical Accounting Policies and Estimates

The Company has chosen accounting policies that it believes are appropriate to accurately and fairly report its operating results and financial position, and the Company applies those accounting policies in a consistent manner. The Significant Accounting Policies are summarized in Note 1 to the Consolidated Financial Statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires that the Company makes estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. The Company evaluates these estimates and assumptions on an ongoing basis and may retain outside consultants, lawyers and actuaries to assist in its evaluation. The Company believes the following accounting policies are the most critical because they involve the most significant judgments and estimates used in preparation of its Consolidated Financial Statements.

Inventories

Inventories are valued at the lower of cost or net realizable value, using both the retail inventory and average cost methods. The retail inventory method is commonly used by retail companies to determine cost and calculate gross margin based on applying a cost-to-retail ratio to each similar merchandise category’s ending retail value. The Company’s center store and pharmacy inventories are valued using last in, first out (LIFO). The Company’s fresh inventories are valued using average cost. The Company evaluates inventory shortages throughout the year based on actual physical counts in its facilities. Allowances for inventory shortages are recorded based on the results of these counts and to provide for estimated shortages from the last physical count to the financial statement date.

Vendor Allowances

Vendor allowances related to the Company’s buying and merchandising activities are recorded as a reduction of cost of sales as they are earned, in accordance with the underlying agreement. Off-invoice and bill-back allowances are used to reduce direct product costs upon the receipt of goods. Promotional rebates and credits are accounted for as a reduction in the cost of inventory and recognized when the related inventory is sold. Volume incentive discounts are accounted for as a reduction of cost of sales and realized using estimated amounts at the time it is deemed probable that the incentive target will be reached. Long-term contract incentives, which require an exclusive vendor relationship, are allocated over the life of the contract. Promotional allowance funds for specific vendor-sponsored programs are recognized as a reduction of cost of sales as the program occurs and the funds are earned per the agreement. Cash discounts for prompt payment of invoices are realized in cost of sales as invoices are paid. Warehouse and back-haul allowances provided by suppliers for distributing their product through the Company’s distribution system are recorded in cost of sales as the required performance is completed. Warehouse slotting allowances are recorded in cost of sales when new items are initially set up in the Company’s distribution system, which is when the related expenses are incurred and performance under the agreement is complete. Swell allowances for damaged goods are realized in cost of sales as provided by the supplier, helping to offset product shrink losses also recorded in cost of sales.

Income Taxes

Income taxes are inherently complex and require Management’s evaluation and estimates, specifically regarding current and deferred income taxes and uncertain tax positions. The Company reviews the tax positions taken, or expected to be taken, on tax returns to determine whether, and to what extent, a benefit can be recognized in its Consolidated Financial Statements. The assessment of the Company’s tax position relies on the judgment of Management to estimate the more likely than not merits associated with the Company’s various tax positions.

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Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations: (continued)

Critical Accounting Policies and Estimates (continued)

Leases

The Company leases approximately 49% of its open store facilities under operating leases that expire at various dates through 2036, with the remaining store facilities being owned. These leases generally provide for fixed annual rentals; however, several provide for minimum annual rentals plus variable lease costs related to real estate taxes and insurance as well as contingent rentals based on a percentage of annual sales or increases periodically based on inflation. These variable lease costs are not included in the measurement of the operating lease right-to-use assets or lease liabilities and are charged to the related expense category included in “Operating, general and administrative expenses.” Most of the leases contain multiple renewal options, under which the Company may extend the lease terms from 5 to 20 years. Additionally, the Company has operating leases for certain transportation and other equipment. The Company leases or subleases space to tenants in owned, vacated and open store facilities. Rental income is recorded when earned as a component of “Operating, general and administrative expenses.”

Self-Insurance

The Company is self-insured for a majority of its workers’ compensation, general liability, vehicle accident and associate medical benefit claims. The self-insurance liability for most of the medical benefit claims is determined based on historical data and an estimate of claims incurred but not reported. The other self-insurance liabilities including workers’ compensation are determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported. The Company is self-insured for certain healthcare claims and stop-loss coverage is maintained for individual annual claim occurrences exceeding a $500 thousand specific deductible. The Company is liable for workers’ compensation claims ranging from $1.0 million to $2.0 million per claim. Property and casualty insurance coverage is maintained with outside carriers at deductible or retention levels ranging from $250 thousand to $1.0 million. Significant assumptions used in the development of the actuarial estimates include reliance on the Company’s historical claims data including average monthly claims and average lag time between incurrence and reporting of the claim.

Forward-Looking Statements

In addition to historical information, this Annual Report may contain forward-looking statements, which are included pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. For example, risks and uncertainties can arise with changes in: general economic conditions, including their impact on capital expenditures; business conditions in the retail industry; the regulatory environment; rapidly changing technology and competitive factors, including increased competition with regional and national retailers; and price pressures. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect Management’s analysis only as of the date hereof. The Company undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in other documents the Company files periodically with the Securities and Exchange Commission.

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Item 7a.   Quantitative and Qualitative Disclosures about Market Risk:

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Other Relevant Market Risks

The Company’s equity securities at December 30, 2023 had a fair value of $4.9 million. The dividend yield realized on these equity investments was 6.2% in 2023. By their nature, both the fixed interest rate securities and the equity investments inherently expose the holders to market risk. The extent of the Company’s interest rate and other market risk is not quantifiable or predictable with precision due to the variability of future interest rates and other changes in market conditions. However, the Company believes that its exposure in this area is not material.

The Company’s revolving credit agreement is exposed to interest rate fluctuations to the extent of changes in the SOFR rate. The Company believes this exposure is not material due to availability of liquid assets to eliminate the outstanding credit facility.

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Item 8.   Financial Statements and Supplementary Data:

WEIS MARKETS, INC.

CONSOLIDATED BALANCE SHEETS

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See accompanying notes to Consolidated Financial Statements.

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WEIS MARKETS, INC.

CONSOLIDATED STATEMENTS OF INCOME

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