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Slower growth and competitive pricing on tap for Natural Grocers

Natural Grocers by Vitamin Cottage logo
Natural Grocers by Vitamin Cottage remains committed to its core values and strategies but will slow its pace of new-store openings and compete on price more in the coming year. Here's a preview of the year.

Expect Natural Grocers by Vitamin Cottage to get more competitive in the coming year.

Even as Co-president Kemper Isely called Whole Foods Market’s price cuts “a bunch of smoke,” he said price competition is getting more severe because Amazon’s ownership of Whole Foods has created a "whole new [pricing] dynamic."

He spoke Nov. 16 during the Natural Grocers by Vitamin Cottage fourth-quarter earnings call.

Price investments, leaders said, are a primary part of the company’s conservative earnings guidance. For fiscal year 2018 started Oct. 1, Natural Grocers expects:

  • To open eight to 10 stores. A likely go-forward pace, Isely said. The company opened 14 stores in fiscal 2017 and 23 in fiscal 2016.
  • Relocate three to four stores.
  • Daily average comparable store sales growth of 0.5 percent to 2.5 percent.
  • Net income as a percentage of sales of 0.6 percent to 0.9 percent.
  • Diluted earnings per share of 21 cents to 31 cents.
  • Capital expenditures in the range of $25 million to $30 million.

The company has 11 signed leases for stores that are planned to open in fiscal 2018 and beyond in Colorado, Iowa, Missouri, Oregon and Texas.  

A private label line launch is on tap for the second quarter.

The year ended up for the health food chain, with the company meeting guidance even amid challenges. Net sales increased 9 percent to $769 million in fiscal 2017. Grocery grew, but both supplements and body care fell slightly year over year.

Comparable store sales ended the year 0.1 percent up, with sales increasing 2.1 percent for comparable stores in the fourth quarter.

Fourth-quarter trends are pleasing, Isely said. Additional highlights included:

  • Net sales increasing 9.7 percent to $198.5 million in the fourth quarter.
  • Gross profit during the fourth quarter of fiscal 2017 increasing 4.5 percent over the same period in fiscal 2016 to $53.2 million.
  • A 1.2 percent increase in daily average transaction count and a 0.9 percent increase in average transaction size.
  • Daily average mature store sales decreased 0.2 percent in the fourth quarter of fiscal 2017 compared with a 1.8 percent decrease in Q4 2016.

For the year:

  • Gross profit during increased 5.2 percent over the same period in fiscal 2016 to $212.3 million, primarily driven by an increase in the number of comparable stores.
  • Gross margin was 27.6 percent of sales during fiscal 2017 compared with 28.6 percent of sales in fiscal 2016. The decline in gross margin during fiscal 2017 was primarily driven by an increase in occupancy costs and a slight decrease in product margin, both as a percentage of sales.
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