Natural Grocers' Q1 Comps, Net Income Decline

Despite an increase in net sales and gross profit, Natural Grocers has reported a decrease in comps and a sharp decline in net income in its first quarter of fiscal 2017.

Compared with the same period a year prior, net sales for the Lakewood, Colo.-based natural food retailer increased 19.4 percent, to $183.6 million, for the most part due to a $16.9 million increase in new store revenue. However, a decline in transaction count pushed comps down 0.6 percent, while sales pressures and expenses outpacing revenue growth caused net income to fall 45 percent, to $2.1 million. EBITDA, too, fell 11.4 percent, to $11.3 million.

Kemper Isely, co-president of Natural Grocers, acknowledged the competitive pressure that the company continues to face from both traditional and newly entered nontraditional competitors in the natural and organic food space, as well as the challenges facing food retailers overall, noting that the grocer still has “work to do driving traffic and improving operating margins.”

“As anticipated, comparable-store sales trends and margins remained under pressure during the first quarter," Isely said. "However, we are pleased with our nutrition education investments centered around our nutrient-to-know-about initiatives, which contributed to positive comparable-store sales growth in supplements and supported our favorable product-margin performance during the quarter. Additionally, we were able to manage our cash flow to maintain our capital spending below the amount of cash provided by operations.

Added Isely: “We remain comfortable with our full-year fiscal 2017 guidance and are maintaining flexibility as we look to balance our growth and cost-saving initiatives. We continue to anticipate improved relative performance in the second half of our fiscal year."

Natural Grocers' store expenses during the first quarter of fiscal 2017 increased 16.6 percent, to $41.8 million. Store expenses as a percentage of sales increased approximately 140 basis points to 22.8 percent during the first quarter of fiscal 2017, compared with 21.4 percent in the first quarter of fiscal 2016. This increase was primarily due to higher labor costs as a percentage of sales, as well as the deleveraging of other store expenses as a result of the decline in comps.

During the first quarter of fiscal 2017, Natural Grocers opened five new stores, bringing its total store count, as of Dec. 31, 2016, to 131 locations in 19 states. The five new stores in the first quarter of fiscal 2017 and four new stores in the first quarter of fiscal 2016 resulted in a 22.4 percent and 17.6 percent unit growth rate, respectively, during those periods.