Natural Grocers by Vitamin Cottage recorded moderate comp sales growth, but strong net sales and net income increases in its second quarter of 2019.
Comparable-store sales grew 2.9% in the quarter that ended March 31, as daily average basket size increased 3.5% but the average number of transactions dropped 0.6%.
Co-president Kemper Isely was pleased with the results, in part because of strong sales in 2018. “It reflects strong performance in light of the 7.1% comp increase in the prior year period,” he said during Thursday’s earnings call.
Severe weather across Natural Grocers’ market areas affected both sales and expenses, as sales at mature stores (those open in or before fiscal 2014) increased only 1.8%, compared with sales increases of 4.3% a year ago. In addition, the company spent $435,000—an increase of $400,000— on snow removal during the quarter, according to Chief Financial Officer Todd Dissinger.
For both the second quarter and the first half of fiscal 2019, Natural Grocers reported mostly positive earnings:
- Net sales in Q2 were $230.4 million, a 6.7% increase from 2018. For the six months ended March 31, net sales totaled $452 million, an 8% increase.
- Gross profit for the quarter was $62.2 million, up 6.8% from $58.3 million a year ago; for the year so far, gross profit was $121.4 million, an 8.9% increase from 2018’s $111.4 million.
- Gross margin in Q2 was 27%, the same as it was in Q2 2018. For the two first two quarters of the year, it was 26.9%, slightly higher than the 26.6% margin in the first two quarters of 2018.
- Operating income for the quarter grew 8.4%, to $6.1 million from $5.6 million. In the first six months, it increased 29.6%, to $10.2 million from $7.8 million.
- Net income for the quarter was $3.9 million, a 13.4% increase from $3.4 million in 2018. For the half-year, however, net income fell 29.5% to $6.1 million from $8.6 million. The Tax Reform Act, enacted in December 2017, resulted in a $4.5 million income-tax increase this year compared to 2018.
Although the margin was consistent with last year’s at this time, a shift in the sales mix had a negative effect. The company makes more from sales of supplements and body-care products than it does from grocery sales. A mild flu season reduced sales of vitamins and supplements, though, Dissinger said.
Responding to a question the intensity of competition among grocery stores, Isely said, “The grocery business is perhaps the most competitive area of retail and it always has been. I don’t think that it’s changed any from quarter to the next quarter or from this year to another year.”
Unlike many of its competitors, Natural Grocers is not promoting home delivery, which it offers through Instacart, Isely said in response to a question during the earnings call. The delivery business is incremental and, therefore, profitable. But if it took away from the store’s business, it would become unprofitable, he said.
In the second quarter, Natural Grocers opened one store and relocated one store. Already in the third quarter, one store has relocated, Isely said. Going forward, the company has signed leases on five locations and plans to buy and build another site; the new stores will open this year or later, he said.