Natural Grocers Attributes Strong Q2 to High Level of Customer Engagement

Boost in customer traffic drove 2.7% increase in comparable-store sales

5/8/2023

Strong sales trends indicate that Natural Grocers has a loyal and resilient customer base that prioritizes products with health and sustainability attributes.

Natural Grocers by Vitamin Cottage Inc. continues to resonate with consumers, as an increase in customer traffic in its second quarter ended March 31 drove a 2.7% growth in comparable-store sales, which exceeded company expectations. Daily average transaction count also increased 2.7%.

During Q2 of fiscal 2023, net sales for the natural and organic grocer escalated by $11.4 million, or 4.2%, to $283.2 million, due to the $7.4 million increase in comps and a $4.9 million increase in new store sales.

“The strength of our sales trends indicate that we have a loyal and resilient customer base that prioritizes our healthy and sustainably focused offerings,” said Kemper Isely, co-president of Natural Grocers, during the company’s Q2 earnings call. “We believe that our high product standards, marketing emphasis on the strong value proposition, always affordable prices, excellent customer service, and a convenient and friendly shopping experience continue to resonate with consumers and position us as a leading destination for natural and organic products in our markets.”

The company’s strongest-performing departments in Q2 were dairy, meat and grocery.

“The supplement sales comp was similar to the total company comp,” noted CFO Todd Dissinger during the Q2 earnings call. “Our {N}power loyalty program membership grew 18% to more than 1.9 million members by the end of the second quarter.”

The {N}power net sales penetration was 76%, up from 73% a year ago. Gross margin increased 90 basis points to 29.1% and was driven by higher product margin, reflecting the grocer’s ability to offset cost inflation through increased pricing.

“One contributor to our success is our Natural Grocers branded products, which represent value and uncompromising quality,” said Isely. “In the second quarter, our Natural Grocers brand accounted for 8.1% of total sales, up from 7.7% a year ago. We believe that our Natural Grocers brand has a long runway, and we are targeting sales penetration to grow by approximately one percentage point annually. Our team is working hard to identify new products and vendors that meet our rigorous standards.”

Recently, the company added five new varieties of canned seafood to its line of Natural Grocers brand products. The organic and natural grocer is now offering customers convenient, nutrient-dense sources of protein via its branded Albacore and Skipjack Tuna, Wild Pink Salmon, and two varieties of Wild Sardines.

Meanwhile, gross profit during Q2 rose $5.7 million, or 7.4%, to $82.5 million, compared with $76.8 million in Q2 of fiscal 2022. Net income was $5.9 million, or 26 cents diluted earnings per share, compared with last year’s net income of $6.4 million, or 28 cents diluted earnings per share.

Administrative expenses ticked up 5.3% to $8.6 million, primarily driven by a higher compensation expense. Natural Grocers provided a $1-per-hour wage rate increase for all hourly store crew in the first quarter of fiscal 2023. Following that increase, the company-wide average hourly wage rate for full-time store crew now exceeds $20 per hour.

Store expenses during Q2 rose 9.4% to $65.2 million. Store expenses as a percentage of net sales were 23.0%, up from 21.9% in Q2 of fiscal 2022.

Adjusted EBITDA increased 4.6% to $16.8 million, compared with last year's $16.1 million.

During Q2, Natural Grocers opened one store in McCall, Idaho, ending the quarter with a total of 166 stores in 21 states. The company recently decided to close two underperforming stores in Texas as part of its ongoing efforts to drive higher store productivity.

The grocer is on now track to open four to six new stores and relocate two to three stores in fiscal 2023. Over the next several years, Natural Grocers anticipates opening between six and eight new stores per year, with the expectation that construction and supply chain conditions will improve.

The company is also raising its comparable-store sales guidance for the year, based upon year-to-date performance and current trends. Natural Grocers now expects daily average comparable-store sales growth of 1%-2%.

“We continue to be encouraged by our operating trends and are confident in our ability to continue to drive growth and enhance value for all stakeholders,” observed Dissinger.

The company's board of directors declared a quarterly cash dividend of 10 cents per common share.

Family-operated Natural Grocers operates more than 160 stores in 21 states. The Lakewood, Colo.-based natural and organic grocer is No. 95 on The PG 100, Progressive Grocer’s 2022 list of the top food and consumables retailers in North America. PG also named Natural Grocers one of its 10 Most Sustainable Grocers.