Q1 2021 Natural Grocers By Vitamin Cottage Inc Earnings Call

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Chorus call, which call would you like.

Yes, Hi, I'm here for the natural grocers by vitamin Cottage call.

Your name please.

First name is Bianca V I a N C a.

Last name is S for Sierra.

A y O N November.

And your company please.

I'm with error, that's a I E R. A.

You'll be on hold until the call begins thank you.

Yes.

Yes.

[music].

Okay.

Good day, ladies and gentlemen, and welcome to the natural grocers first quarter fiscal year 'twenty 'twenty, One earnings conference call.

At this time all participants are in a listen only mode.

Later, we will conduct a question and answer session and instructions will be given at that time.

As a reminder, today's conference call is being recorded.

At this time I would like to turn the conference call over to Mr. David Colson, Vice President and Treasurer for natural grocers. Mr. Colson, you may begin.

Good afternoon, everyone and thank you for joining us for the natural grocers by vitamin Cottage first quarter fiscal year 2021 earnings conference call on.

On the call with me today are Kemper Isley co President and Todd Dissinger, Chief Financial Officer as a reminder, certain information provided during this conference call are forward looking statements based on current expectations and assumptions and are subject to risks and uncertainties actual results could differ materially from those described.

In the forward looking statements due to a variety of factors, including the risks and uncertainties detailed in the company's most recently filed forms 10-Q and 10-K.

The company undertakes no obligation to update forward looking statements. Today's press release is available on the company's website and a recording of this call will be available on the website at investors Dot natural grocers Dot com.

Now I will turn the call over to Kemper.

Thank you David and good afternoon, everyone. Thank you for taking the time to join US today. We are pleased with our strong start to fiscal 2021, we continue to see positive operating trends as we effectively navigate the challenges of the Covid pandemic and related government mandates we remained.

<unk> focused on our founding principles, which have been instrumental to our success and differentiate us from our competition. These principles include supporting our communities and delivering the highest quality natural foods and supplements at always affordable prices.

In the first quarter, we saw continued momentum across our business consistent with our expectations customers continued to practice, social distancing and follow a pandemic safety guidelines, the resulting in increased consumption of food at home, we generated $15, 2% net sales growth we achieved.

<unk> 12, 7% daily average comparable store sales growth driven by an increased transaction size. We saw further gross margin expansion driven by cost leverage and improved product margin and an inflationary tailwind.

And we delivered strong earnings growth with a 94, 4% increase in net income.

We saw positive results from many of our key initiatives. Our empower program continues to support our customer loyalty efforts, we realized 69% net sales penetration and ended the quarter with $1 3 million members.

The empower platform enables us to refine and optimize our marketing to members through E mail campaigns capable of generating customer specific offers.

We also saw further acceptance of our meal deals feed your family of four campaign, which is well timed for consumers in this uncertain economic environment. This campaign provides simple recipes and shopping lists for healthy tasty and affordable meals for under $16.

These recipes feature natural grocers branded products, which provides great value to our customers.

Our natural grocers branded products grew by 23, 5% and represented a seven 5% penetration of net sales during the first quarter, we launched two new categories, including 11, new Skus during the quarter.

Our pre packaged bulk offerings are delivering strong growth and resonate with our customers who are focused on preparing healthy meals at home.

Out of stocks have remained at levels consistent with the third and fourth quarters of fiscal 2020, which represents an improvement over the levels. We experienced at the end of the second quarter of last year.

During the first quarter, we launched two new programs are virtual nutrition education program, which includes personal lines sessions with our nutritional health coaches guest presenter series and cooking classes. The rooted in community gratitude giveaway program, which honors community members, who spread acts of kindness and <unk>.

Cheer.

Throughout the first quarter, we continued to focus on the health and safety of our good for you crew and our customers, we pride ourselves in providing a clean safe and convenient shopping experience to the communities we serve.

In support of our commitment to our crew, we continued to pay bonuses to our store and distribution center crew in the first quarter. In addition to the $1 per hour permanent wage increase implemented in March 2020.

The year over year incremental cost of these wage and bonus enhancements were approximately $3 5 million.

In the first quarter I would like to thank our good for you crew for their continued diligence and commitment they are positive energy as a driving force behind our business and their wellbeing, along with ensuring a safe shopping experience is our number one priority with that let me turn the call over to Todd to discuss our financial results and guidance.

Sure.

Thank you Kemper and good afternoon, everyone. We delivered another strong quarter with continued favorable trends across our store base. During the first quarter net sales grew 15, 2% to $265 million with daily average comparable store sales growth of 12, 7%.

Our comp increase was the result of a basket size increase of 21, 4%.

Partially offset by transaction count, which was down seven 1% on.

Our basket and transaction trends continue to reflect changing consumer dynamics as a result of social distancing and public health measures.

We saw these first quarter sales trends continued through January.

Looking at some of the key sales drivers during the first quarter, we experienced above average comp growth in meat frozen produce dairy grocery and bulk consistent with recent quarterly trends.

Dietary supplements performed well with a nine 3% comp growth rate.

Online delivery sales through our partner instant card represented a low single digit sales penetration rate, which is consistent with the past several quarters.

We experienced an inflation rate consistent with recent quarters at approximately 3%.

Gross profit margin during the first quarter was 27, 6% compared to 26, 3% in the prior year period. The gross margin expansion was driven by leverage of occupancy and shrink expenses as a percentage of sales as well as an increased product margin.

Store expenses as a percentage of sales increased to 22, 8% in the first quarter compared to 22, 4% in the first quarter of fiscal 2020 labor related expenses were the primary driver of the increase store expenses also include.

Approximately $400000 of costs related to exiting a lease associated with a store that closed in fiscal 2019.

Net income.

<unk> increased to $3 $6 million with diluted earnings per share of <unk> 16 cents in the first quarter. This compares to net income of $1 $9 million or eight of diluted earnings per share in the first quarter of fiscal 2020.

Adjusted EBITDA was $13 2 million in the first quarter up 25, 5% compared to $10 $6 million in the prior year period.

During the first quarter, we generated cash from operations of $12 $3 million and invested $3 $7 million in net capital expenditures.

During the quarter, we opened one new store compared to opening two new stores in the prior year period.

We ended the first quarter with a strong balance sheet and liquidity position and we are well positioned to face the uncertain operating environment.

As of December 31, 2020, we had $24 $7 million in cash and no outstanding balance under our $50 million revolving credit facility.

As previously announced we secured a $35 million term loan which was fully drawn as of December 31 2020.

Today, we announced that our board of directors has declared a quarterly cash dividend of seven <unk> per share the dividend will be paid on March 17th 2021 to all stockholders of record at the close of business on March one 2021.

Now I would like to confirm the company's fiscal 2021 outlook previously announced on November 19 2020.

Our guidance reflects current trends in light of the rapidly evolving COVID-19 environment and related government mandates.

While the company cannot predict the duration or severity of the pandemic and related government mandates. The company expects that these factors will continue to impact our operations and financial performance through the fiscal year.

For fiscal 2021, we expect to open five to six new stores.

Relocate three to five stores.

Achieve daily average comparable store sales growth of between negative, 2% and 2%.

Chief diluted earnings per share between 60 and 70.

And we expect capital expenditures for the fiscal year in the range of 28% to $35 million in closing we are pleased to have delivered another quarter of strong performance supported by the dedication of our good for you crew.

We continue to be guided by our founding principles, which differentiate us in the marketplace now I would like to open the lines up for questions. Thank you.

Yeah.

Yeah.

Ladies and gentlemen at this time, we'll begin the question and answer session.

The ask a question you May press Star and then one using your Touchtone telephone.

So withdraw your question you May press Star two.

If you are using a speaker phone, we do ask that you. Please pickup your handset before pressing the keys to ensure the best sound quality.

Once again that is star and then one quick question.

We will pause momentarily to assemble the roster.

Yes.

And our first question today comes from Craig.

And Ian from Wolfe Research. Please go ahead with your question.

Good afternoon. This is actually Spencer hanus on for Greg.

Nice quarter again, guys. My first question is just on on the cadence of comps throughout the quarter could you comment on that and then for the quarter to date trends are you seeing similar results across all regions.

Yes.

On the comps were fairly consistent through the quarter October was the strongest part.

November and December with it.

Approximately.

Same.

January comp was approximately.

Yes.

Very similar to what we experienced for the entire quarter.

And what day.

In terms of states I'm, sorry Spencer.

Really.

We aren't able to really deter.

German any variations there driven by mandates, it's kind of up and down and.

There is no <unk>.

Consistency there between mandates and on and Lockdowns.

Got it that's helpful. And then in terms of the gross margins that they ticked up sequentially versus the fourth quarter could you just help us sort of unpack the components there that led to the better performance sequentially and then have you seen your price gaps.

Good day changed versus your peers over the last over the last few months. Thanks all.

Alright.

Okay.

So we saw an improvement in the gross margin.

Part of that was driven by leverage on.

Occupancy and shrink expense and.

An improved product margin.

Slightly less promotional.

Driving the product margin.

And I'm sorry was there another part of the question the other part was.

In regards to our pricing compared to our competitors I would say our pricing compared to our competitors is the differential has stayed about the same.

We got it and to have better pricing.

<unk> four <unk>.

And produce against one of our competitors.

Yes.

That's helpful. And then I think you mentioned your out of stocks were consistent with <unk> and <unk>. What do you think out of stocks will be back to cash.

Normal levels.

It'll probably be at least another six months.

They have improved.

Quite a bit over.

Last quarter this that.

Net in so far this so far this fiscal year this calendar year.

So on January.

Yes.

Okay and in terms of in terms of capital allocation. How are you thinking about the right level of leverage for the business and balancing returning capital to shareholders versus reinvesting back in growth and square footage growth. How are you thinking about those those levers.

Well as far as borrowing goes will be very conservative.

Our balance sheet is very <unk>.

Not levered Levered, and we will keep it that way.

Yes.

Great.

Well, we will have.

Moderate store growth as well.

As we fine.

Premium sites to open stores that.

Okay.

And once again, if you would like to ask a question. Please press star and then one.

Withdraw yourself on the question you May press Star two.

And then a store and then one to ask a question.

And ladies and gentlemen at this time in showing no additional questions I'd like to turn the floor back over to management for any closing remarks.

Thank you very much for joining us to discuss our first quarter results. We continue to strive to be the grocery of choice for our health driven customers and are confident in the opportunities that lie ahead. We look forward to speaking with you on our next call to review our second quarter 2021 results. Please stay healthy and safe and have a great day.

Thanks Bye.

Yes.

Ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending.

You may now disconnect your lines.