Facing unexpectedly stiff competition as well as more conservative consumer spending in states sensitive to oil prices, Natural Grocers announced somewhat sluggish results for the second quarter of fiscal 2016 during its earnings call on Thursday. Net sales were up 12.5 percent, to $177 million, while average mature store sales and gross profit margins were down.

During the call, Co-President Kemper Isely announced that the board of directors has authorized a two-year program to buy back up to $10 million in shares of the company’s common stock, saying the current stock price does not reflect Natural Grocers’ full growth prospects.

The 1.3 percent drop in daily average mature store sales was attributed to increased internal competition and to regional economic pressures; Isely said that Colorado, Oklahoma, Wyoming and Texas—where the markets have shown sensitivity to the recent drop in oil and gas prices—all underperformed. Colorado took an extra hit because of bad weather leading up to the Easter holiday.

Daily average comparable store sales increased 1 percent, driven entirely by an increase in average transaction size. Gross profit margin declined 60 basis points, primarily due to increased occupancy costs as a percent of revenue, said Chief Financial Officer Sandra Buffa. 

The bright spot was in the retailer’s performance in supplements. “Our focus on nutritional supplements and nutrition education is one of our key differentiators in this competitive marketplace,” Isely said, adding that supplements and body care exceeded expectations. “Our new marketing strategy is to communicate our strengths and differentiators by educating consumers in an engaging and compelling manner that strongly positions us as the grocery store of choice for natural and organic products.”

He said the company is deploying a “grassroots marketing campaign” to highlight these strengths and lift the profile of the retailer among consumers. He gave the example of the good4u challenge, for which the company engaged disc jockeys instead of running radio ads. “It got the message out that we do nutritional education, and we educated all of these disc jockeys in these markets about how important diet is and nutritional supplements are,” he said. “They’re really talking about us on the radio—not just for the 30 seconds of the ad, but during other times. That’s how we’re going to create social media awareness and buzz, not just through traditional means of advertising.” There’s also a plan to increase the number of individual stores with their own Facebook pages; the stores that already do this are performing better than others, so the hope is to study what those stores are doing and emulate it throughout the company.

Looking ahead, Isely said the company is sticking with the updated outlook issued on April 20, with the expectation of opening 23 new stores resulting in 22.3 percent unit growth, and diluted earnings between 50 cents and 56 cents per share.

Highlights for second quarter and first half fiscal 2016 compared to second quarter and first half fiscal 2015