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Natural Grocers fiscal 2020 sales break company record

Natural Grocers by Vitamin College
The Lakewood, Colorado-based natural retailer issues a special dividend after outstanding year.

In fiscal 2020, sales at Natural Grocers by Vitamin Cottage reached $1 billion for the first time.

"We faced many challenges and opportunities in fiscal 2020, and our response resulted in a record performance including achieving over $1 billion net sales and 89 cents in diluted earnings per share," Natural Grocers Co-president Kemper Isely said during the Wednesday afternoon conference call.

"Fiscal 2020 was an unprecedented year, presenting numerous challenges amid the global pandemic and related government mandates. We are very proud of our strong response and performance," he said.

"We navigated through the toughest of operating environments while delivering the highest quality natural and organic foods to our valued customers," he continued.

About 1.3 million customers belong to Natural Grocers' Npower club, a loyalty program that provides digital coupons and personalized offers. Npower members account for about 68% of Natural Grocers' sales, Isely said.

Natural Grocers continues to increase its private label selection, adding 54 SKUs during fiscal year 2020, the co-president said. At year-end, the company had more than 1,000 private label products.

Private label sales accounted for 7.3% of total sales in the fourth quarter, compared with 6.8% in Q4 of fiscal 2019, Isely said.

"Our private brand products have been developed and sourced consistent with our core values and positioned as a premium quality brand at an always affordable price," he said.

Isely also announced that shareholders will receive a special dividend of $2 per share, on top of the usual $0.07 dividend for the fourth quarter. The dividends be paid on Dec. 16 to stockholders of record at the close of business on Nov. 30.

"The special dividend reflects our strong business performance, financial position, cash flow and our commitment to return value to our shareholders," Isely said.

Natural Grocers began paying quarterly dividends a year ago, at the end of fiscal 2019. The special dividend is being paid with available cash and money borrowed from Natural Grocers' $35 million term loan.

Gross margin rose as fewer promotions were offered

"During fiscal year 2020, we also continued to enhance store performance with our margin expansion efforts, supported by the strong sales momentum," Isely said. "We realized significant improvement to adjusted EBITDA through the year."

As they have since the pandemic spread across the United States in March, customers visited Natural Grocers stores less often but spent more when they were there.

Chief Financial Officer Todd Dissinger said transaction size in the fourth quarter increased 23.7% but the number of transactions fell 8.5%. For the quarter, comparable store sales increased 13.2%.

Comparable sales of meat, frozen, produce, bulk and dairy outpaced the store average, he said, without specifying the increases by product.

Supplement sales were 8% higher in Q4 for 2020 than they were a year earlier, Dissinger said.

High comparable store sales continued through October, Isely said.

For the fourth quarter, Natural Grocers reported net sales of $264.2 million, an increase of 16.3% or $37 million compared to the fourth quarter of 2020.

Other Q4 financials also reflected positive results:

  • Net income increased 174.2% to $3.7 million, with diluted earnings per share of $0.16.
  • Operating income increased 78.7% to $5.0 million.
  • Gross profit increased 22.8% to $72.4 million from $59 million in Q4 of 2019.
  • Gross margin was 27.4% compared with 26% in the same period a year ago.  
  • Adjusted EBITDA increased 28.1% to $13.3 million.

Fiscal 2020 was the 17th consecutive year of Natural Grocers' reporting positive, daily average comparable-store sales growth, Isely said.

But with the increased sales came some extra expenses, particularly at the store level.

Store expenses rose 14.8% in fiscal 2020 to $227.1 million, mostly because of extra labor costs related to the coronavirus pandemic. Natural Grocers gave all hourly employees a $1 per hour permanent pay increase in March—on top of a $1 per hour pay increase from March 23 until May 3—and provided bonuses. In addition, the company offered 2 weeks of paid time off to anyone who was diagnosed with COVID-19 or quarantined.

The stores also hired temporary, full-time positions at all stores to keep them stocked and clean. Some of these changes were required by government mandates, Dissinger said.

Those labor expenses will continue to be higher than the previous year's until March, when 2021 will lap the virus-related increased spending, he said.

In general, Natural Grocers fiscal 2020 financial report was good news for the company:

  • Net sales in fiscal 2020 increased 14.7% or $133.3 million to reach $1 billion.
  • Daily average comparable store sales for the year increased 12%. While transactions decreased 4.5%, average basket size grew 17.2%.
  • Net income was $20 million, compared with $9.4 million in fiscal 2019.
  • Operating income was $27.7 million, an increase of $65.5% compared with fiscal 2019.
  • Gross profit for the year increased 18.6% to $283.1 million.
  • Gross margin for the year was 27.3% compared with 26.4% a year ago.
  • Adjusted EBITDA increased 29.1% to $59.6 million, compared with $46.1 million in fiscal 2019.

For the year, store expenses increased 14.8% to $227.1 million, primarily due to the pandemic-related labor expenses outlined above.

Looking ahead, Dissinger said comparable store sales in fiscal 2021 are expected to range between -2% to 2%.

In the first quarter, January and February, comparable sales will likely approximate comparable sales in Q4 of 2020. But when March rolls around, sales will be compared to the pantry-stocking surge sales of March 2020, when same-store sales were 40% higher than they had been in 2019, he said.

Natural Grocers plans to open five or six new stores in 2021, and relocation three to five others.

Diluted earnings per share are projected to be $0.60 to $0.70, the company said.

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