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Margin investments pay off for Natural Grocers

Natural Grocers by Vitamin Cottage focused on promotion in 2018 to turn the tide on slow fiscal 2017. Here's how the chain ended its fiscal year and where it's headed in 2019.

Increased customer counts and larger basket sizes drove improved comparable store sales for Natural Grocers by Vitamin Cottage in the fourth quarter and fiscal 2018.

Comparable store sales grew 6.3 percent in the fourth quarter compared with 2.1 percent in the fourth quarter of fiscal 2017, the company reported. Transaction counts grew 3.8 percent while the average basket grew 2.5 percent.

Competitive promotions focused on price just might have been the secret.

The company took margin hits earlier in the year to realize those gains, but the costs stabilized as the year progressed and the investment paid off, Co-president Kemper Isely told analysts during the fiscal fourth-quarter earnings call Nov. 15.

Natural Grocers ended fiscal 2018 with sales growth of 10.4 percent, to hit $849 million, and the quarter up 9.6 percent, reaching $217.5 million.

Additional highlights for the fourth quarter include:

  • Mature store (those opened before 2013) sales increased 3.9 percent compared with a 0.2 percent decrease in the fourth quarter of 2017.
  • Gross margin was 26.3 percent of sales for the fourth quarter of fiscal 2018 compared with 26.8 percent.
  • Net income grew 68.7 percent to $2.1 million with diluted earnings per share of 9 cents.
  • Store expenses as a percentage of sales decreased to 22.1 percent compared with 22.7 percent in the fourth quarter of fiscal 2017.
  • Gross profit increased 7.6 percent.
  • Adjusted EBITDA increased 9.8 percent to $11.3 million.

Highlights for the fiscal 2018 year-end include:

  • Daily average comparable store sales were up 5.8 percent compared with a 0.1 percent increase in fiscal 2017.
  • Daily transactions grew an average 4.4 percent as basket sizes grew an average 1.4 percent.
  • Gross margin was 26.6 percent of sales during fiscal 2018 compared with 27.6 percent of sales in fiscal 2017.
  • Daily average mature store sales increased 3 percent compared with a 1.6 percent decrease in fiscal 2017.
  • Net income grew $12.7 million with diluted earnings per share of 56 cents.
  • Store expenses as a percentage of sales decreased to 22 percent of sales during fiscal 2018 compared witho 22.7 percent during fiscal 2017.
  • Gross profit increased 6.2 percent.
  • Adjusted EBITDA was $45.1 million in fiscal 2018.

Natural Grocers by Vitamin Cottage now has 148 stores in 19 states and has signed leases for five new stores in Colorado, North Dakota, Oregon and Texas that are planned for 2019 or later.

The natural chain’s plans 2019 outlook includes:

  • New stores: Seven to nine.
  • Number of relocations: Five to six.
  • Daily average comparable store sales growth: 2 percent to 4 percent.
  • Net income as a percentage of sales: 0.75 percent to 1 percent.
  • Diluted earnings per share: 33 cents to 40 cents.
  • Capital expenditures: $27 million to $32 million.
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