Natural Grocers Tripled Earnings per Share in Q3

Buoyed by ongoing sales growth, Natural Grocers by Vitamin Cottage Inc. reported for its third quarter of fiscal 2018 ended June 30 a 9.5 percent net sales increase to $213.1 million, a 5.2 percent percent daily average comparable-store sales uptick, and a 233 percent net income surge to $2 million with diluted earnings per share of 9 cents, among other positive news.

“We are pleased with our third-quarter results, including continued strong sales momentum and improved operating margins that contributed to a tripling of earnings per share,” said Kemper Isely, co-president of the Lakewood, Colo.-based natural food retailer. “We continue to invest in our sales initiatives, including price and promotional investments, while seeing a moderating impact to gross margin, resulting in improved expense leverage. We remain confident with our growth and operating strategies and will continue to focus on driving sales and delivering improved profit performance.”

The company attributed its Q3 2018 net sales growth to a $10 million increase in comps and an $8.4 million rise in new store sales. Daily average comparable store sales for the quarter went up because of a 4 percent increase in daily average transaction counts and a 1.1 percent bump in average transaction size. Additionally, daily average mature-store sales increased 2.3 percent in the third quarter of fiscal 2018, versus a 0.9 percent decrease in the year-ago period.

Gross profit during the third quarter of fiscal 2018 rose 7.7 percent over last year to $56.8 million, accounting for 26.7 percent of sales, compared with 27.1 percent for the third quarter of fiscal 2017. According to Natural Grocers, the decline in gross margin was due to lower product margin in the wake of recent promotional pricing campaigns, and a shift in sales mix to lower-margin products.

Additionally, EBITDA in the company’s third quarter of fiscal 2018 rose 20.7 percent to $11.1 million, compared with the year-ago period.

Year-to-Date Results

During the first nine months of fiscal 2018, Natural Grocers’ net sales grew $61.0 million, or 10.7 percent, over last year to $631.5 million, which the company attributed to a $32.1 million rise in comparable store sales and a $28.9 million increase in new-store sales. Daily average comps rose 5.7 percent during the first nine months of fiscal 2018, versus a 0.7 percent decline in the year-ago period. Natural Grocers said the Q3 increase was driven by a 4.6 percent rise in daily average transaction count and a 1.0 percent uptick in average transaction size. Daily average mature-store sales rose 2.7 percent in the first nine months of fiscal 2018, compared with a 2.1 percent decrease last year.

Gross profit during the first nine months of fiscal 2018 grew 5.8 percent over the year-ago period to $168.3 million, accounting for 26.6 percent of sales, versus 7.9 percent last year. The decline in gross margin was mainly caused by lower product margin, reflecting recent promotional pricing campaigns and a shift in sales mix to lower-margin products, and, to a lesser extent, an increase in occupancy expense as a percentage of sales, the company noted.

Natural Grocers reported a net tax benefit of $2.4 million in the first nine months of fiscal 2018, and the company’s effective income tax rate for the first nine months of fiscal 2018 was about 24 percent, compared with 34.4 percent last year, both due to the recent federal income tax reform.

The retailer’s net income was $10.6 million, with diluted earnings per share of 47 cents in the first nine months of fiscal 2018. Excluding the favorable impact of the remeasurement of the company’s deferred tax assets and liabilities as a result of federal income tax reform, net income came to $6.2 million, or diluted earnings per share of 28 cents, for the nine months ended June 30.

EBITDA during the company’s first nine months of fiscal 2018 was $33.8 million.

During the third quarter of fiscal 2018, Natural Grocers opened two new stores and relocated one, bringing its total store count to 147 stores in 19 states. The company opened seven new stores and relocated two stores in the first nine months of fiscal 2018, versus opening 14 new stores and relocating one store in the year-ago period. Since July 1, Natural Grocers has relocated one store in Colorado and signed seven leases for stores in Colorado, Iowa, Oregon and Texas slated to open during fiscal 2018 and beyond.

Thanks to its continued solid results, the company is raising its fiscal 2018 outlook for daily average comps to 4.5 percent to 5.5 percent, and raising the low end of its fiscal 2018 diluted earnings-per-share outlook to 48 cents to 50 cents, among other changes to its guidance.