• Q1 sales increased 4.9% 
  • Operating income decreased 30% to NIS 6.4m (US$1.8m)
  • Net income decreased 13.9% to NIS7.1m

Israeli food distributor G. Willi-Food booked a drop in profit for the first quarter as pressure on pricing and higher promotional costs hit the bottom line.

Operating income fell 30% in the three months to NIS6.4m (US$1.8m) the company said. Net income fell 13.9%.

The company said it was squeezed by greater pressure to drop prices from its customers and an increase in global prices.

Sales in the period were up, however, climbing almost 5% year-on-year.

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First Quarter Fiscal 2014 Highlights

  • Sales increased 4.9% from first quarter of 2013 to NIS 95.0 million (US$ 27.2 million)

  • Gross profit increased 0.1% from first quarter of 2013 to NIS 21.4 million (US$ 6.1 million), or 22.5% of sales

  • Operating income decreased 30.0% from first quarter of 2013 to NIS 6.4 million (US$ 1.8 million), or 6.8% of sales

  • Net income decreased 13.9% from first quarter of 2013 to NIS 7.1 million (US$ 2.0 million), or 7.5% of sales

  • Earning per share of NIS 0.55(US$ 0.16) compared to earning per share of NIS 0.64(US$ 0.18) in the first quarter of 2013 

  • Cash and securities balance (net of short-term bank debt) of NIS 198.8 million (US$ 57.0 million) as of March 31, 2014

Willi-Food's operating divisions include Willi-Food, a distributor of a broad variety of kosher foods, and its wholly-owned Gold Frost, a designer, developer and distributor of branded kosher innovative dairy food products.

First Quarter Fiscal 2013 Summary Sales for the first quarter of 2014 increased by 4.9% to NIS 95.0 million (US$ 27.2 million) from NIS 90.6 million (US$ 26.0 million) recorded in the first quarter of 2013. Sales increased in the first quarter of 2014 primarily due to our increased marketing efforts and sales activities combined with the growing demand from domestic and international customers for our quality kosher products.

Gross profit for the first quarter of 2014 increased by 0.1% to NIS 21.4 million (US$ 6.1 million) compared to NIS 21.4 million (US$ 6.1 million) recorded in the first quarter of 2013. First quarter gross margin was 22.5% compared to gross margin of 23.6% for the same period in 2013. The decrease in gross margin in the first quarter of 2014 was primarily due to reductions in the prices of certain of our products as a result of continued pressure from our customers to reduce prices and an increase in global prices of food products. The Company expects the decline in its gross margins to continue in the second and third quarters of 2014 compared to 2013 second and third quarter's gross margins. To the extent that customer pressure to reduce prices continues, or global and local prices of food products continue to increase, the Company's gross margins may be impacted beyond the third quarter of 2014.

Willi-Food's operating income for the first quarter of 2013 decreased by 30.0% to NIS 6.4 million (US$ 1.8 million) compared to NIS 9.2 million (US$ 2.6 million) recorded in the first quarter of 2013 due to the price pressure referred to above. Selling expenses increased by 33.5% from the comparable quarter of 2013, primarily due to an increase in promotion expenses as well as vehicle and transport expenses. Selling expenses as a percentage of sales increased in the first quarter of 2014 to 10.6% compared to 8.3% in the first quarter of 2013. General and administrative expenses increased by 8.3% from the first quarter of 2013, primarily due to an expense of NIS 0.5 million (US$ 0.14 million) related to options granted to the Company's Chairman, President and CEO on November 2013. General and administrative expenses as a percentage of sales increased in the first quarter of 2013 to 5.3% from 5.2% in the first quarter of 2013.

Willi-Food's income before taxes for the first quarter of 2014 decreased by 10.6% to NIS 9.8 million (US$ 2.8 million) compared to NIS 10.9 million (US$ 3.1 million) recorded in the first quarter of 2013.

Willi-Food's net income in the first quarter of 2014 decreased by 13.9% to NIS 7.1 million (US$ 2.0 million), or NIS 0.55(US$ 0.16) per share, from NIS 8.2 million (US$ 2.4 million), or NIS 0.64(US$ 0.18) per share, recorded in the first quarter of 2013.

Willi-Food ended the first quarter of 2014 with NIS 198.8 million (US$ 57.0 million) in cash and securities net from short-term debt. Willi-Food's shareholders' equity at the end of March 2014 was NIS 373.5 million (US$ 107.1 million).

Business Outlook Mr. Zwi Williger, Chairman of Willi-Food commented, "First quarter results were affected by the sharp decline of consumption by the Israeli consumer that although didn't reduced the number of visits to stores, sharply decreased the consumer's consumption basket. Although we achieved organic sales growth of 5% - the highest quarterly sales in the Company's history, our profit margins declined. Going forward, we are facing an increase in the level of uncertainty in the local economy. On May 18, 2014 the Israeli Central Bureau of Statistics announced that the Private Consumption Expenditure per Capita in the first quarter of 2014 decreased by 4% compared to the fourth quarter of 2013 after decreasing by 1% in the fourth quarter of 2013 compared to the third quarter of 2013. The economic uncertainty, coupled with changes in the Israeli market and ongoing consumer demand for price reductions, will probably negatively affect our results in near future. Saying that, we expect that we will not meet our budget for the second and third quarter of 2014."

Mr. Williger continued, "In light of the anticipated continued recession and decreasing Private Consumption as well as continuing price pressure from consumers, our foreseeable challenges ahead will be in managing our expenses, and in particular the cost of our products, in order to accommodate our consumers' continued desire to acquire lower cost products. We hope that in these difficult times we will be able to maintain our customer base both in the retail and in the wholesale markets." 

Mr. Williger concluded, "We believe that this period presents an opportunity for us to utilize cash on hand to purchase synergetic companies at prices lower than before. We continue to look for opportunities to create additional value for our shareholders." 

Original source: G. Willi-Food