Pandemic Shoppers Lift Natural Grocers in Q3

Company raises earnings outlook, plans to open at least 4 new stores
Gina Acosta
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Earlier this year the grocery chain introduced a new expanded line of private label supplements.

Shoppers looking to eat healthier and improve their wellness during the pandemic helped lift sales and profits at Natural Grocers during the third quarter.

For the third quarter ended June 30, Natural Grocers by Vitamin Cottage Inc. said operating income increased 5.4% to $7 million; net Income increased 7.3% to $5 million. Daily average same-store sales decreased 3.6% but daily average same-store sales on a two-year stacked basis increased 11.9%. Net sales decreased 2.4% to $258.6 million. And diluted earnings per share were 22 cents compared to 21 cents in the prior year.

The company updated its fiscal 2021 outlook and raised its diluted earnings per share guidance, reflecting year to date results and current trends. The fiscal 2021 outlook reflects the evolving COVID-19 environment and related government mandates. The company now expects comp growth of -1.0% to 1.0% and diluted earnings per share of 68 cents to 74 cents.

"We are pleased with our third quarter results, as we were able to leverage our sales and improve our operating margins to drive higher year-over-year earnings. Our sales strength is reflective of consumers' demand for our healthy and affordable offerings, even as alternative food options become more available. Our commitment to our founding principles – which includes offering high-quality natural and organic products, at always affordable prices, and being a resource for science-based nutritional education – has been fundamental to our success, particularly as consumers have become more focused on the importance of good nutrition as a result of their experiences during the pandemic," said Kemper Isely, co-president. "During the quarter, comparable store transaction count turned positive and basket size moderated as we started to see a return to pre-pandemic shopping patterns. Our basket size in the third quarter continued to be over 20% higher than the pre-pandemic level of the third quarter of 2019. Finally, our crew's execution of our operating strategies, including a commitment to exceptional customer service, was instrumental in driving our strong quarterly results."

Natural Grocers said its daily average same-store sales decrease in the third quarter was comprised of a 7.4% decrease in daily average transaction size, partially offset by a 4.1% increase in daily average transaction count. This reflects a reversal of recent trends as customers started to return to pre-pandemic shopping patterns, the company said.

The decline in net sales during the third quarter of fiscal 2021 was primarily attributable to the elevated level of net sales experienced during the third quarter of fiscal 2020, as customers consumed more food at home in response to the onset of the COVID-19 pandemic. While net sales during the third quarter of fiscal 2021 benefited from customers' response to the pandemic and related government mandates, this trend moderated from the levels experienced during the prior year period.

Gross profit during the third quarter of fiscal 2021 decreased 1.2%, to $71.5 million primarily driven by lower net sales levels. Gross profit reflects earnings after both product and occupancy expenses. Gross margin increased to 27.7% during the third quarter of fiscal 2021, compared to 27.3% in the third quarter of fiscal 2020. The increase in gross margin was a result of higher product margin and lower shrink expense, as a percentage of sales, partially offset by occupancy expense deleverage.

During the third quarter of fiscal 2021, the company did not open any new stores and relocated two stores, compared to opening two new stores in the third quarter of fiscal 2020. The company had 161 stores in 20 states as of the end of the third quarter of fiscal 2021. 

As of Aug. 5, the company has signed leases for four new stores, and purchased the property for one new store, which will be located in Colorado, Missouri and Nevada. These new stores are planned to open during fiscal 2021 and beyond.

Earlier this year the grocery chain introduced a new expanded line of private label supplements. The line features more than 100 vitamins, herbs, minerals and precision formulas that are accessibly priced while providing high-quality ingredients and third-party certified Good Manufacturing Practices.

With 161 stores in 20 states, Lakewood, Colorado-based Natural Grocers is No. 95 on The PG 100, Progressive Grocer's 2021 list of the top food and consumables retailers in North America.

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