Market Overview

Spruce Point Capital Releases a Strong Sell Forensic Research Opinion on Weis Markets, Inc. (NYSE: WMK)


Spruce Point Capital Releases a Strong Sell Forensic Research Opinion on Weis Markets, Inc. (NYSE:WMK)

PR Newswire

NEW YORK, Sept. 5, 2018 /PRNewswire/ -- Report entitled "Every Day High Prices Guaranteed" outlines how Weis Markets, a northeastern regional supermarket, faces 45% - 65% downside risk, or $17.60 to $26.40 per share, as a result of declining organic growth, margin pressures from price discounting, and difficult financial comparisons as a result of aggressive accounting changes that are temporarily inflating operating cash flow.     

  • In Our Opinion, A Non-Competitive Supermarket Charging 15% Higher Prices:  Spruce Point believes Weis Markets is poorly positioned and not aligned with changes in the supermarket industry. Recent price checks on a basket of items show that Weis charged 20% more than peers in 2017, and now charges a 15% premium to peers. Amazon, WalMart, Target, Costco and Wegman's are creating a more intense environment for Weis to compete. Furthermore, our big data analysis suggests that Aldi's and Lidl, both ultra-low costs grocers, are gaining traction with Weis' core customers.
  • Evidence of Financial Strain Through Forensic Analysis:  In April 2018, Weis unveiled a new $101m capital plan and told investors it would add two new stores. However, we find that it has not disclosed in SEC filings that three stores will close in 2018. Weis said that revenue growth in 2017 was "primarily" from acquisitions, but our analysis proves that absent acquisitions, Weis core grocery and pharmacy sales declined 1.1% in 2017. In Q2'18, Weis reported -0.7% negative same store sales (SSS, ex: fuel) and blamed part of the issue on July 4th timing. This was the first time it blamed Q2 performance on July 4th since 2001. Weis has systematically reduced SSS and operating cost financial disclosures, while having three different auditors since 2014.
  • Accounting Changes And One-Time Items Temporarily Enhancing Performance: Weis recently changed its accounting for receivables to treat any outstanding cash in transit up to a week to be included as cash. Our research suggests that a few days, and not a week, are industry best practice. This change optically improves Weis' cash conversion cycle, and has inflated recent operating cash flow growth. Weis also booked a one-time gain in Q4'18 for tax reform. We believe Weis will have difficulty sustaining recent earnings and operating cash flow growth comparisons in the coming quarters
  • Poor Governance And Misalignment With Shareholders And Employees: Despite declining organic growth in 2017, Weis claimed success and raised salaries of its executives by double digits. In our opinion, Weis rewards its CEO/Chairman with nice perks, but offers rank and file employees no equity participation in the success of the company.
  • A Terrible Risk/Reward At Current Price Levels:  Weis currently trades at 32x our estimated 2018 earnings, making it the most valuable supermarket in the United States, despite negative organic growth, margin compression, the lowest returns on capital in the industry, poor investor communications, and no Wall St. research coverage. Recent industry takeover multiples and current trading values for supermarkets suggests a 12x to 18x multiple is appropriate for valuing Weis' earnings. This results in 45%-65% downside risk, or $17.60 to $26.40 per share

The research report can be found on our website at and updates will be posted on twitter @sprucepointcap

Spruce Point Capital has a short position in Weis Markets, Inc (WMK) and stands to benefit if its share price falls.

About Spruce Point Capital
Spruce Point Capital Management, LLC, is a forensic fundamentally-oriented investment manager that focuses on short-selling, value and special situation investment opportunities.

Sean Donohue   
Spruce Point Capital Management 

Spruce Point Capital Management, LLC is a member of the Financial Industry Regulatory Authority, CRD number 288248.

SOURCE Spruce Point Capital Management, LLC

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SOURCE Spruce Point Capital Management

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