Natural Grocers Encouraged by Q1 Results, Raises 2024 Guidance
Healthy retailer Natural Grocers by Vitamin Cottage Inc. is starting off the new year on a good foot with positive first-quarter earnings. For its Q1 of fiscal 2024 ended Dec. 31, net sales increased 7.6% to $301.8 million, driven by a 6.2% increase in daily average comparable-store sales and a $5.5 million increase in new store sales.
“We believe our carefully vetted offering of natural and organic products, coupled with our emphasis on value and always affordable pricing, differentiate us in the marketplace and continue to drive demand with health-conscious consumers,” said Co-President Kemper Isely during the company’s earnings call.
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Daily average comps rose 6.2% in Q1, comprising a 3.4% increase in daily average transaction count and a 2.7% bump in daily average transaction size. The increase in net sales was driven by transaction count, retail price increases, new store sales and marketing initiatives, including market-specific campaigns and {N}power rewards program offers that drove customer engagement.
The specialty retailer’s {N}power rewards program grew 16% year over year to more than 2.1 million members by the end of the first quarter. {N}power net sales penetration was 78%, up from 76% a year ago.
“We are very encouraged by the strong customer traffic trends we have experienced over the past several quarters,” noted Isely.
CFO Todd Dissinger pointed out that the item count per basket in Q1 was flat compared with the same period in the prior year, reflecting an improving trend over the past several quarters. “Our item count per basket remains above pre-pandemic levels," he said. "Sales growth was broad-based across categories. Our strongest-performing departments were meat, body care and dairy.”
Natural Grocers’ store brands accounted for 8.5% of total sales, up from 7.9% a year ago.
Net income for Q1 was $7.8 million, or 34 cents diluted earnings per share, compared with last year’s net income of $4.4 million, or 19 cents diluted earnings per share.
Adjusted EBITDA was $18.8 million, compared with last year’s $13.8 million.
Gross profit increased 12.8% to $88.8 million. Store expenses rose 6.9% to $68.0 million, primarily driven by higher compensation expense. Administrative expenses increased 14.0% to $9.4 million, also driven by higher compensation expense.
Operating income for Q1 was $10.8 million, compared with last year’s $6.4 million.
Natural Grocers ended its first quarter in a strong financial position, including $13.6 million in cash and cash equivalents. It had $18.4 million in outstanding borrowings on its $75 million revolving credit facility.
The company generated $16.6 million in cash from operations and invested $11.8 million in net capital expenditures, primarily for new and relocated stores.
“Store unit growth and development continues to be a priority for our company,” said Isely. “During the first quarter, we opened stores in Twin Falls, Idaho, and Loveland, Colo., and relocated one of our stores in Albuquerque, N.M.” Natural Grocers ended the quarter with a total of 167 stores in 21 states.
Meanwhile, its EBITDA jumped 35.4% to $18.3 million. Additionally, adjusted EBITDA rose 35.5% to $18.8 million.
Encouraged by its Q1 results, Natural Grocers has raised its fiscal 2024 outlook for daily average comparable-store sales growth and diluted earnings per share. The company now expects to achieve daily average comp growth between 3% and 5%; achieve diluted earnings per share between $1.02 and $1.12; and direct $30 million to $39 million toward capital expenditures to support growth initiatives.
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“Our current expectation is that sales comps will be at the high end of our outlook range in the second quarter and will moderate in the second half of the year as we cycle stronger comps in the back half of fiscal 2023,” said Dissinger. “Our outlook anticipates that year-over-year gross margin will be slightly higher in the second quarter and about flat in the second half of the year.”
Natural Grocers expects to open four to six new stores and undergo four to six relocations/remodels in fiscal 2024.
"We believe we are well positioned to leverage our momentum throughout the balance of the fiscal year," added Isely.
Family-operated Natural Grocers operates more than 165 stores in 21 states. The Lakewood, Colo.-based natural and organic grocer is No. 95 on The PG 100, Progressive Grocer’s 2023 list of the top food and consumables retailers in North America. PG also named Natural Grocers one of its 10 Most Sustainable Grocers.
