Natural Grocers by Vitamin Cottage Q3 2024 Earnings Report

Natural Grocers by Vitamin Cottage EPS Results

• Actual EPS: $0.40
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Natural Grocers by Vitamin Cottage Revenue Results

• Actual Revenue: $309.08 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Natural Grocers by Vitamin Cottage Announcement Details

• Quarter: Q3 2024
• Date: 8/8/2024
• Time: N/A
• Conference Call Date: Thursday, August 8, 2024
• Conference Call Time: 4:30PM ET

Natural Grocers by Vitamin Cottage (NYSE:NGVC), together with its subsidiaries, retails natural and organic groceries, and dietary supplements in the United States. The company's stores offer natural and organic grocery products, such as organic produce; private label repackaged bulk products, including dried fruits, nuts, grains, granolas, teas, herbs, and spices, as well as peanut and almond butters; private label products comprising grocery staples, household products, bulk foods, and vitamins and dietary supplements, as well as organic eggs, organic flavored coffee, and organic mustard; dry, frozen, and canned groceries; meat and seafood products; dairy products, dairy substitutes, and eggs; prepared foods; bread and baked products; beverages; and beer, wine, and hard cider products. Its stores also provide name-brand supplements, as well as private label dietary supplements; body care products consisting of cosmetics, skin care, hair care, fragrance, and personal care products containing natural and organic ingredients; pet care and food products; books and handouts; household and general merchandise, including cleaning supplies, paper products, and dish and laundry soaps, as well as other common household products, such as diapers; and books and handouts. The company operates its retail stores under the Natural Grocers by Vitamin Cottage trademark, as well as Vitamin Cottage Natural Grocers and Health Hotline trademarks. The company also offers science-based nutrition education programs to help customers make informed health and nutrition choices. Natural Grocers by Vitamin Cottage, Inc. was founded in 1955 and is headquartered in Lakewood, Colorado.

Natural Grocers by Vitamin Cottage Q3 2024 Earnings Call Transcript

[Operator]

Good day, ladies and gentlemen. Welcome to the Natural Grocers Third Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, today's call is being recorded.

[Operator]

I'd now like to turn the conference over to Ms. Jessica Thiessen, Vice President, Treasurer for Natural Grocers. Ms. Thiessen, you may begin.

[Speaker 1]

Good afternoon, and thank you for joining us for the Natural Grocers by Vitamin Cottage Q3 fiscal year 2024 earnings conference call. On the call with me today are Kemper Eiseley, Co President and Todd Dissinger, Chief Financial Officer. As a reminder, certain information provided during this conference call contains forward looking statements based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from those described in the forward looking statements due to a variety of factors, including the risks and uncertainties detailed in the company's most recently filed Forms 10Q and 10 ks. The company undertakes no obligation to update forward looking statements.

[Speaker 1]

Today's press release is available on the company's website and a recording of this call will be available on the website at investors. Naturalgrocers.com. Now I will turn the call over to Kemper.

[Speaker 2]

Thank you, Jessica, and good afternoon, everyone. Today, I will highlight our Q3 financial results, including key drivers of our performance and provide an update on priorities. Then Todd will discuss the results in greater detail and review our updated fiscal year 2024 guidance. We are very pleased with our financial results for the Q3 year to date, including record sales, operating margin expansion and diluted earnings per share growth. We believe that our customers more than ever understand and appreciate our compelling value proposition comprised of a carefully vetted offering of high quality, natural and organic products at always affordable prices.

[Speaker 2]

Our marketing initiatives consistently emphasize these key characteristics to drive customer engagement. We believe that communicating and establishing our unique position in the marketplace has been instrumental in generating our strong sales performance over the past several quarters. In the 3rd quarter, we realized a 7.2% daily average comparable store sales growth comprised of a 4.7% increase in transaction count and a 2.4% increase in transaction size. This was the 2nd consecutive quarter with items count growth. Furthermore, the 3rd quarter represents our 4th consecutive quarter of comparable store sales growth in excess of 6%.

[Speaker 2]

Our focus on operational execution, including effectively managing expenses and productivity initiatives, once again enabled us to leverage elevated sales trends, resulting in 100 basis point improvement in the operating margin and a 29% increase in diluted earnings per share. 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. 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. We believe that our customers strongly prefer our in store shopping experience to our online option, which is primarily delivery.

[Speaker 2]

Approximately 98% of our sales occur in store. Our in store customer experience is convenient, easy to shop, clean and offers friendly and knowledgeable customer service. Our online sales have been growth and margin expansion have been driven by in store sales. Our sales and margin results have not been impacted by the volatility often associated with adding new delivery services or delivery related promotional incentives. Turning now to an update on key priorities.

[Speaker 2]

We continue to leverage our Npower Rewards program as reflected in the 3rd quarter net sales penetration of 80%, up from quality at compelling prices. In the Q3, our branded products accounted for 8.5% of total sales, up from 7.6% a year ago. During the quarter, we launched 33 new Natural Grocers brand items, including a cereal line that is certified organic, certified free and crafted in Italy by a 5th generation family business. Store unit growth and development continues to be a priority for our company. During the Q3, we relocated one of our Oklahoma City stores and completed major remodels of our Temple, Texas and Independence, Missouri stores.

[Speaker 2]

Subsequent to the quarter, we opened a new store in Incline Village, Nevada, which is in the Lake Tahoe area. In closing, I would like to thank our Good4U crew for their commitment to operational excellence and exceptional customer service. That were instrumental in driving our strong results. We are fortunate to have a crew who share an affinity for our founding principles and are dedicated to ensuring that our stores, operations and supply chain reflect these values. With that, I will turn our call over to Todd to discuss our financial results and guidance.

[Speaker 3]

Thank you, Kemper, and good afternoon. We are very pleased with the continuation of our strong performance through the Q3. Net sales increased 9.7% from the prior year period to $309,100,000 Daily average comparable store sales increased 7.2% and increased 11.6% on a 2 year basis. Our daily average transaction count increased 4.7%. This marks our 6th consecutive quarter with positive customer traffic comps.

[Speaker 3]

Our daily average transaction size increased 2.4%. About half of the transaction size comp was attributed to an increase in items per basket. This was the 2nd consecutive quarter with an item count increase. Every major product category had an increase in item count. The other half of the transaction size comp was attributed to product cost inflation.

[Speaker 3]

We estimate that our annualized cost inflation for the Q3 was approximately 1%. Sales growth continued to be broad based across product categories. Our strongest performing departments were meat, dairy and produce. The dietary supplement sales comp was in the low single digits. Gross margin increased 30 basis points to 29.2 percent driven by store occupancy leverage, partially offset by lower product margin, primarily attributable to a lower supplement sales mix.

[Speaker 3]

Store expenses increased 7.9% in the Q3, primarily driven by higher compensation expenses. Store expenses as a percentage of sales decreased 30 basis points, reflecting expense leverage as elevated sales more than offset higher labor costs. Administrative expenses as a percentage of sales decreased 20 basis points, reflecting expense leverage. Operating income increased 41.4 percent to $12,800,000 The effective tax rate was 21.9 percent 14.1 percent for the Q3 of fiscal 20242023, respectively. The increase in the effective tax rate was primarily attributable to lower food donation deductions during the Q3 of fiscal 2024.

[Speaker 3]

Net income was $9,200,000 with diluted earnings per share of $0.40 in the 3rd quarter. This compares to net income of $7,100,000 or 0 point Adjusted EBITDA increased 32.8 percent to $22,200,000 in the 3rd quarter. Turning to the balance sheet and cash flow. We ended the 3rd quarter in a strong financial position, including $13,900,000 of cash and cash equivalents. We had $16,600,000 in outstanding borrowings on our 75,000,000 dollars revolving credit facility.

[Speaker 3]

During the 1st 9 months of fiscal 2024, we generated cash from operations of 49,300,000 dollars and invested $31,800,000 in net capital expenditures, primarily for new and relocated stores, resulting in free cash flow of $17,500,000 We are raising our fiscal 2024 guidance for daily average comparable store sales growth and diluted earnings per share. Additionally, we are refining our outlook for the number of new stores and relocation remodels and narrowing our capital expenditures range. Our revised guidance includes the following: open 4 new stores, relocate or remodel 5 stores, achieve daily average comparable store sales growth between 6% 7%, achieve diluted earnings per share between 1 point $2.7 $1.34 and direct $35,000,000 to $39,000,000 towards capital expenditures to support our growth initiatives. In closing, we had a strong quarter and are encouraged by our operating trends. We are confident in our ability to continue to drive profitable growth and enhance value for all stakeholders.

[Speaker 3]

Now I would like to open up the lines for questions. Thank you.

[Operator]

We will now begin the question and answer Seeing no questions, this concludes our question and answer session. I would like to turn the conference back over to Kemper Isley for any closing remarks.

[Speaker 2]

Thank you very much for joining us to discuss our Q3 results. This month marks our 69th year serving our communities. I encourage you to visit one of our locations during August 15 August 17 to help us celebrate our anniversary. We look forward to updating you on our next call regarding the Q4 and full fiscal year 2024 results. Thank you and goodbye.

[Operator]

The conference has now concluded. Thank you for attending the Natural Grocers Third Quarter Fiscal Year 20 24 Earnings Conference Call. You may now disconnect.