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Inflation, Supply Chain Snarls No Match for Natural Grocers

Retailer posts sales, profit increases in Q4
Gina Acosta, Progressive Grocer
For fiscal 2022, Natural Grocers expects to open four to six new stores.

Pandemic-led consumer appreciation for the value of good nutrition and supplements contributed to impressive sales for Natural Grocers in the fourth quarter.

For the period ended Sept. 30, net sales increased 3.2% at Natural Grocers to $272.6 million. Daily average same store sales increased 2.5%, and 15.7% on a two-year stacked basis. Net income increased 93.3% to $7.2 million. Diluted earnings per share was 32 cents, up from 16 cents in the fourth quarter of fiscal 2020.

"Our fiscal 2021 performance resulted in a record $1.1 billion in net sales and $0.91 of diluted earnings per share. Fiscal 2021 was our eighteenth consecutive year of positive daily average comparable store sales growth," said Kemper Isely, co-president. "We finished the year with a strong fourth quarter. Diluted earnings per share was up 100% to $0.32, above our expectations. Daily average comparable store sales accelerated and gross margin improved, which we leveraged across a more normalized level of operating expense compared to last year. An increase in transaction counts was slightly offset by a moderation in transaction size, however, the average basket has remained elevated as compared to the pre-pandemic level, up over 20% compared to the fourth quarter of 2019."

During an earnings call, Isely talked about how inflation is affecting the business. 

"Inflation remained in the 2% to 3% range during the fourth quarter and we continue to pass along the impact via pricing," he said. "As far as our customers absorbing the costs of the higher prices, everybody is having to pass along the same or similar or even higher costs and so there isn’t much choice, and our customers don’t seem to be blinking in regards to that issue."

One of the key sales drivers for Natural Grocers in the fourth quarter was supplements.

"The supplement comp was over was a double-digit figure," Isely said. "So we’re seeing that continue into Q1. We think that that trend was likely to support or help margin in the first half of the year and so we’re expecting margins for the full year to be flat to slightly positive and we’ll probably see some pressure on margin on the back half of the year, in particular, as we cycle Q4, where we saw this great improvement in supplements."

The company says out of stock levels in the fourth quarter remained relatively consistent with prior quarters of this year. Out of stocks at Natural Grocers are lower than at the beginning of the pandemic, although still above pre-pandemic levels.

For full fiscal 2021, net sales increased 1.8% to $1.1 billion. Daily average same store sales increased 0.7%, and 12.7% on a two-year stacked basis. Net income was $20.6 million, with diluted earnings per share of 91 cents, up from 89 cents in fiscal 2020.

For fiscal 2022, the company expects to open four to six new stores, relocate three to four stores, achieve daily average comparable store sales growth between zero and 2%, achieve diluted earnings per share between 75 cents and 87 cents, and direct $28 million to $35 million toward capital expenditures to support growth initiatives.

"Opening new stores and relocating stores has been challenging due to the delays we are experiencing in the construction process and equipment deliveries," Isely said. "We intend to open four to six stores in fiscal 2022 and thereafter return to opening between six and eight new stores per year, subjected to improving conditions for store construction."

With 162 stores in 20 states, Lakewood, Colo.-based Natural Grocers is No. 95 on The PG 100, Progressive Grocer's 2021 list of the top food and consumables retailers in North America.

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