Natural Grocers In-Store Experience Boosts Sales in Q3
Natural Grocers by Vitamin Cottage Inc. reported a strong third quarter that included record sales, operating margin expansion and diluted earnings per share growth.
In its Q3 ended June 30, the company's net sales jumped 9.7% from the prior-year period to $309.1 million. Daily average comparable-store sales grew 7.2% and increased 11.6% on a two-year basis. Daily average transaction count rose 4.7%. This marks the sixth consecutive quarter with positive customer traffic comps. Transaction size grew 2.4%, the second consecutive quarter with item count growth.
“Every major product category had an increase in item count,” said CFO Todd Dissinger, during the company's earnings call. “Our strongest- performing departments were meat, dairy and produce. The dietary supplement sales comp was in the low single digits.” Dissinger recently revealed that he will retire from Natural Grocers at the end of the year.
In Q3, the grocer's branded products accounted for 8.5% of total sales, up from 7.6% a year ago. During the quarter, the specialty retailer launched 33 new store brands.
Operating income increased 41.4% to $12.8 million in Q3. Net income was $9.2 million, with diluted earnings per share of 40 cents. This compares with net income of $7.1 million, or 31 cents of diluted earnings per share, in Q3 of last year. Adjusted EBITDA increased 32.8% to $22.2 million.
Co-President Kemper Isely noted that Natural Grocers continues to resonate with a loyal and resilient customer base. “Our customers are diverse and range from an older demographic with a relatively higher household income and focus on a healthy lifespan to a younger demographic who prioritizes health and sustainability,” he said.
Isely also pointed out that approximately 98% of the specialty retailer's sales occur in-store. “Our in-store customer experience is convenient easy to shop, clean, and offers friendly and knowledgeable customer service,” he observed.
Store unit growth and development continue to be a priorities for the company. During Q3, Natural Grocers relocated one of its Oklahoma City stores and completed major remodels of stores in Temple, Texas, and Independence, Mo. It also opened a new store on July 31 in Incline Village, Nev.
“We ended the third quarter in a strong financial position, including $13.9 million of cash and cash equivalents,” said Dissinger. “We had $16.6 million in outstanding borrowings on our $75 million revolving credit facility. During the first nine months of fiscal 2024, we generated cash from operations of $49.3 million and invested $31.8 million in net capital expenditures, primarily for new and relocated stores, resulting in free cash flow of $17.5 million.”
“Our focus on operational execution, including effectively managing expenses and productivity initiatives, once again enabled us to leverage elevated sales trends, resulting in a 100-basis-point improvement in the operating margin and a 29% increase in diluted earnings per share,” added Isely. “These strong results, coupled with our confidence in our business trends and execution, prompted us to increase our fiscal year 2024 outlook for comparable-store sales and diluted earnings per share.”
The revised guidance includes a 6%-7% daily average comp-store sales growth, diluted earnings per share between $1.27 and $1.34, and the direction of $35 million to $39 million toward capital expenditures to support growth initiatives.
For fiscal 2024, Natural Grocers intends to open four new stores, and relocate or remodel five locations.
Family-operated Natural Grocers by Vitamin Cottage Inc. operates 169 stores in 21 states. The Lakewood, Colo.-based natural and organic grocer is No. 95 on The PG 100, Progressive Grocer’s 2024 list of the top food and consumables retailers in North America.
