Natural Grocers Logs ‘Strong’ Q3, Signs Leases for 6 New Stores

Buoyed by what VP and Treasurer David Colson, in a recent earnings call, described as its “favorable positioning in the market and the continued growth of natural and organic foods and nutritional supplements," Natural Grocers by Vitamin Cottage Inc. has reported a 5.3 percent net sales increase to $224.4 million for its third quarter of fiscal 2019 ended June 30. Meanwhile, the retailer’s Q3 2019 daily average comparable-store sales rise of 2.4 percent, versus a 5.2 percent uptick in the year-ago period, represented its ninth consecutive quarter of comps growth.

The grocer’s Q3 2019 operating income grew 2 percent to $3.8 million and its net income edged up 0.4 percent to $2 million, with diluted earnings per share (EPS) of 9 cents, consistent with Q3 2018, although EBITDA dipped 0.5 percent to $11 million, from $11.1 million last year.

The company also revealed that it has signed leases for six new stores. The leased and owned new locations will be in Colorado, Louisiana, New Mexico, North Dakota, Oregon and Washington state, and are slated to roll out during fiscal 2019 and beyond.

“We continued to effectively execute against our marketing and operational excellence initiatives during the third quarter, delivering continued positive daily average comparable-store sales growth and continued leverage on store expenses,” noted Natural Grocers Co-President Kemper Isely. “Given our strong performance year to date, we are increasing the midpoint of our diluted earnings per share outlook and narrowing our daily average comparable- store sales guidance. Our differentiated model, commitment to our founding principles, leadership in delivering the highest-quality natural and organic products, and consumer experience continue to resonate with our customers.”

The company primarily attributed its net sales growth to a $5.1 million increase in comps and a $6.9 million rise in new store sales, partly offset by a $0.6 million decline in sales from a store closed during Q1 2019. Natural Grocers’ Q3 2019 comps increase was due to a 3 percent rise in daily average transaction size, partly offset by a 0.6 percent decrease in daily average transaction count, according to the retailer. Daily average sales of Natural Grocers’ mature stores – all of those open during or before fiscal 2014 – increased 1.7 percent in Q3 2019, compared with 2.3 percent growth last year.

Gross profit for the grocer during Q3 2019 increased 2.8 percent from the year-ago period to $58.4 million. Its gross margin was 26.0 percent of sales for Q3 2019, versus 26.7 percent last year, which the company said reflected lower product margin mainly attributable to a shift in sales mix toward lower-margin products and higher occupancy costs as a percentage of sales. The increase in occupancy costs was because of higher common-area maintenance expenses, Natural Grocers added.

During the first nine months of fiscal 2019, Natural Grocers’ net sales rose $44.9 million, or 7.1 percent, to $676.4 million from last year, mainly because of a $22.4 million increase in comps and a $24.3 million uptick in new store sales, partly offset by a $1.8 million sales decline from the store that closed during Q1 2019. The grocer’s daily average comps grew 3.6 percent in the first nine months of fiscal 2019, reflecting a 3.2 percent increase in average transaction size and a 0.3 percent increase in daily average transaction count, versus a 5.7 percent increase in the year-ago period. The company’s daily average mature-store sales went up 2.4 percent in the first nine months of fiscal 2019 compared with a 2.7 percent increase last year.

Natural Grocers’ gross profit during the first nine months of fiscal 2019 grew 6.8 percent over the same period in fiscal 2018 to $179.8 million. The company’s gross margin was 26.6 percent of sales for the first nine months of fiscal 2019, consistent with the year-ago period. According to the grocer, during the first nine months of fiscal 2019, a shift in sales mix to lower-margin products was offset by a decrease in occupancy costs as a percentage of sales.

The company’s operating income increased 20.7 percent to $14 million during the first nine months of fiscal 2019, versus $11.6 million last year, and operating margin rose 30 basis points to 2.1 percent, from 1.8 percent in the year-ago period. Natural Grocers’ net income for the first nine months of fiscal 2019 was $8.1 million, or 36 cents of diluted EPS, compared with $10.6 million, or 47 cents of diluted EPS, for the first nine months of fiscal 2018.

According to the grocer, its fiscal 2019 net income decline was because of the $4.3 million noncash re-measurement of its deferred income tax assets and liabilities as a result of the 2017 enactment of the Tax Cuts and Jobs Act. Excluding the favorable impact of the re-measurement of Natural Grocers’ deferred tax assets and liabilities, net income for the nine months ended June 30, 2018, was $6.2 million, or 28 cents of diluted EPS.

The retailer’s EBITDA climbed 5.9 percent to $35.8 million in the first nine months of fiscal 2019, versus $33.8 million in year-ago period.

Natural Grocers has updated its fiscal 2019 outlook to reflect the above-noted increase in the midpoint of its expected diluted EPS and narrower range for its anticipated daily average comps. The company now expects to open seven new stores and relocate five, as well as daily average comps of 2.7 percent to 3.3 percent, diluted EPS of 39 cents to 41 cents, and capital expenditures of $27 million to $30 million.

Lakewood, Colo.-based Natural Grocers operates 152 stores in 19 states.