Q1 2022 Natural Grocers By Vitamin Cottage Inc Earnings Call
Speaker 1: Good day, ladies and gentlemen. Welcome to the Natural Grocers first quarter fiscal year 2022 earnings conference call.
Good day, ladies and gentlemen.
Welcome to the natural grocers first quarter fiscal year 2022 earnings conference call.
Speaker 1: At this time, all participants are known to the MOLI mode.
At this time, all participants are known to multi mode.
Speaker 1: Later, we will conduct the question and answer session, and instructions will be given at that time.
Later, we will conduct a question answer session and instructions will be given at that time.
Speaker 1: As a reminder, today's call is being recorded. I would now like to turn the conference over to Ms. Jessica Thiessen, Assistant Treasurer for Natural Grocers. Ms. Thiessen, you may begin.
As a reminder.
This call is being recorded.
I would now like to turn the conference over to MS. Jessica teaser assistant treasurer for natural grocers.
You may begin.
Good afternoon, everyone and thank you for joining us for the natural grocers by vitamin Cottage first quarter fiscal year 2022 earnings conference call on the call with me today are Kemper Isley co President and Todd Dissinger, Chief Financial Officer.
Speaker 2: Good afternoon, everyone, and thank you for joining us for the Natural Grocers by Vitamin Cottage first quarter fiscal year 2022 earnings conference call on the call with me today are Kemper Eisele co-president and Todd Disinger chief financial officer.
Speaker 2: 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 10Q and 10K. The company undertakes no obligation to update forward-looking statements.
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.
Sales in the company's most recently filed forms 10-Q and 10-K the.
The company undertakes no obligation to update forward looking statements.
Speaker 2: 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.naturalgrocers.com. Now I will turn the call over to Kemper.
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 <unk> Dot natural grocers Dot com now I will turn the call over to Kemper.
Speaker 3: Thank you, Jessica, and good afternoon, everyone. Thank you for joining us today. We are pleased with our strong start to fiscal 2022. We continue to see positive operating trends as we effectively navigate a dynamic environment. Our first quarter results included net sales of $277.3 million and diluted earnings per share of 39 cents, increases of 4.6% and 143.8% respectively.
Thank you Jessica and good afternoon, everyone.
Thank you for joining US today, we are pleased with our strong start to fiscal 2022, we continue to see positive operating trends as we effectively navigate a dynamic environment. Our first quarter results included net sales of $277 3 million and diluted earnings per share.
39.
Increases of four 6% and 143, 8% respectively.
Speaker 3: we were able to leverage strong sales increases into higher profitability, including a 230 basis point improvement in operating margin.
We were able to leverage strong sales increases into higher profitability, including a 230 basis point improvement in operating margin.
Speaker 3: Momentum remains strong across our business. Daily average comparable store sales rose 3.8%, including increases in both transaction count and basket size.
<unk> remained strong across our business daily average comparable store sales rose three 8%, including increases in both transaction count and basket size.
Speaker 3: On a two-year stack basis, daily average comparable store sales increased 16.5% in the first quarter.
On a two year stack basis daily average comparable store sales increased 16, 5% in the first quarter.
Speaker 3: Our unwavering commitment to our founding principles remains a key element in our success. We provide a differentiated offering of natural and organic products at always affordable prices coupled with free science-based nutrition education.
Our unwavering commitment to our founding principles remains a key element in our success, we provide a differentiated offering of natural and organic products at always affordable prices, coupled with free science based nutrition education, which continues to resonate with consumers who are prioritizing.
Speaker 3: which continues to resonate with consumers who are prioritizing health and wellness more than ever.
Health and wellness more than ever.
Speaker 3: Our NPower Loyalty Program continued to grow, evidencing...
Our empower loyalty program continued to grow evidenced scene.
Speaker 3: our deep engagement with our customers. We ended the quarter with almost 1.6 million loyalty members, a year over year increase of 20%. The net sales penetration for N Power reached 73% up from 72% in the fourth quarter and 69% a year ago.
Our deep engagement with our customers we ended the quarter with almost $1 6 million loyalty members a year over year increase of 20%. The net sales penetration for empower reached 73% up from 72% in the fourth quarter and 69% a year ago.
Speaker 3: The first quarter sales were positively impacted by our non-GMO event in October .
The first quarter sales were positively impacted by our non GMO event in October .
Speaker 3: Strong trends around the Thanksgiving holiday in our annual Holly deals promotion in December . We saw strong consumer demand for our supplement offering continue in the first quarter. For the third consecutive quarter, the supplements category posted sales comps that exceeded the overall company average. Customers continue to be drawn to our natural grocers branded products, which accounted for 7.5% of total sales in the first quarter up from 7.1% in the first quarter.
<unk> trends around the Thanksgiving holiday and our annual holiday deals promotion in December we saw strong consumer demand for our supplement offerings continue in the first quarter for the third consecutive quarter. The supplement category posted sales comp that exceeded the overall company average customers.
We need to be drawn to our natural grocers branded products, which accounted for seven 5% of total sales in the first quarter up from seven 1% in the fourth quarter.
Speaker 3: During the quarter, we launched 13 new branded products, including frozen side dishes and additional dietary supplements.
During the quarter, we launched 13, new branded products, including frozen side dishes and additional dietary supplements during.
Speaker 3: During the quarter, we relocated our store in Greeley, Colorado, and are very pleased with our Greeley customers response to the move. We remain on track to open 4 to 6 new stores and relocate or remodel 3 to 4 stores in fiscal 2022.
During the quarter, we relocated our store in Greeley, Colorado and are very pleased with our Greeley customers' response to the move we remain on track to open four to six new stores and relocate or remodel three to four stores in fiscal 2022.
Speaker 3: We continue to manage through supply chain challenges.
We continue to manage through supply chain challenges.
Speaker 3: During the first quarter, our out-of-stokes were relatively consistent with recent quarters. However, we saw a slight increase in our out-of-stokes that began in late December and continued through January . We are working closely with our vendors to address these challenges.
During the first quarter, our out of stocks were relatively consistent with recent quarters. However, we saw a slight increase in our out of stocks that began in late December and continued through January we are working closely with our vendors to address these challenges.
Speaker 3: Earlier this week we released our inaugural environmental social and governance report. Natural Grocers was founded by my parents in 1955 who were inspired by core values that many would recognize today as sustainability principles. The company was built on and remains committed to our five founding principles quality natural and organic products always affordable pricing nutrition education crew and community
Earlier this week, we released our inaugural environmental social and governance report natural grocers was founded by my parents and $19 55, who are inspired by core values that many would recognize today is sustainability principles. The company was built on and remains committed to our five founding principles.
Quality natural and organic products always affordable prices nutrition education crew and community.
Speaker 3: These principles continue to guide our business practices, focusing on the health and well-being of our communities and the planet. Our crew's dedication to these principles ensure our stores' operations and supply chain reflect these values. Since its founding, Natural Grocers has embraced practices intended to make our food system more just, sustainable, and equitable.
Principles continue to guide our business practices, focusing on the health and wellbeing of our communities and the planet our crews dedication to these principles and ensure our stores operations and supply chain reflect these values since its founding natural grocers has embraced practices intended to.
Make our food system more just sustainable and equitable.
Speaker 3: In closing, I want to thank every member of our Good4You crew for their continued hard work and commitment to helping us deliver the highest quality natural and organic products at affordable prices and excellent customer service. With that, let me turn the call over to Todd to discuss our financial results and guidance.
In closing I want to thank every member of our good for you crew for their continued hard work and commitment to helping us deliver the highest quality natural and organic products at affordable prices and excellent customer service with that let me turn the call over to Todd to discuss our financial results and guidance.
Speaker 4: Thank you, Kemper, and good afternoon, everyone. As Kemper indicated, first quarter results were above our expectations, reflecting favorable sales growth and expense leverage.
Thank you Kemper and good afternoon, everyone as Kemper indicated first quarter results were above our expectations, reflecting favorable sales growth and expense leverage.
Speaker 4: Our first quarter net sales increased 4.6% on a year-over-year basis to $277.3 million.
Our first quarter net sales increased four 6% on a year over year basis to $277 3 million daily average comparable store sales were up three 8% on top of a 12, 7% increase in the first quarter of fiscal 2021.
Speaker 4: Daily average comparable store sales were up 3.8% on top of a 12.7% increase in the first quarter of fiscal 2021.
Speaker 4: Average transaction count increased 3% and average transaction size rose 0.8% for the quarter. We experienced inflation in the 3 to 4% range during the first quarter, a slight uptick from the fourth quarter. We continue to pass along the impact via pricing.
Average transaction count increased 3% and average transaction size rose <unk>, 8% for the quarter, we experienced inflation in the 3% to 4% range during the first quarter, a slight uptick from the fourth quarter, we continue to pass along the impact via pricing.
Speaker 4: The strong sales performance and expense leverage helped drive significant margin expansion. Gross margin increased 80 basis points to 28.4%, driven primarily by improved product margin and store occupancy leverage.
The strong sales performance and expense leverage helped drive significant margin expansion gross margin increased 80 basis points to 28, 4% driven primarily by improved product margin and store occupancy leverage store expenses decreased one 6%.
Speaker 4: Store expenses decreased 1.6% in terms of dollars and 140 basis points in terms of rate.
In terms of dollars and 140 basis points in terms of rate.
Speaker 4: We benefited from our strong sales performance, which drove expense leverage.
We benefited from our strong sales performance, which drove expense leverage expenses normalized as we cycled higher incremental pandemic related expenses, including labor hours and pay in the first quarter of fiscal 2021.
Speaker 4: Spences normalized as we cycled higher incremental pandemic-related expenses, including labor hours and pay in the first quarter of fiscal 2021. Like many retailers, we experienced an increased level of constrained labor availability late in the quarter.
Like many retailers, we experienced an increased level of constrained labor availability at late in the quarter.
Speaker 4: Operating income more than doubled versus last year, increasing 131.1% to $12 million. And operating margin improved 230 basis points to 4.3%. Net income of $8.9 million was up 145.5% year over year with diluted earnings per share of $0.39 compared to $0.16 a year ago.
Operating income more than doubled versus last year, increasing 131, 1% to $12 million and operating margin improved 230 basis points to four 3% net income of $8 $9 million was up 145, 5% year over.
A year with diluted earnings per share of 39 cents compared to <unk> 16, a year ago <unk>.
Speaker 4: Adjusted EBITDA increased 44.7% to $19.5 million.
Adjusted EBITDA increased 44, 7% to $19 $5 million.
Speaker 4: Turning to the balance sheet and cash flow, we ended the first quarter in a strong financial position with $25.3 million of cash and cash equivalents. We had no outstanding borrowings under our $50 million revolving credit facility and a $21.7 million balance on our term loans.
Turning to the balance sheet and cash flow. We ended the first quarter in a strong financial position with $25 $3 million of cash and cash equivalents, we had no outstanding borrowings under our $50 million revolving credit facility and a $21 $7 million balance on our term loan.
Speaker 4: During the first quarter, we generated cash from operations of $12.1 million and invested $5.3 million in net capital expenditures, resulting in free cash flow of $6.7 million.
During the first quarter, we generated cash from operations of $12 1 million and invested $5 3 million in net capital expenditures, resulting in free cash flow of $6 $7 million.
Speaker 4: Today we announced that our Board of Directors has declared a quarterly cash dividend of 10 cents per share. The dividend will be paid on March 16th, 2022 to all stockholders of record at the close of business on February 28th, 2022. Now I would like to review our outlook, which reflects current trends, including the rapidly evolving COVID-19 environment.
Today, we announced that our board of directors has declared a quarterly cash dividend of <unk> 10 per share the dividend will be paid on March 16th 2022 to all stockholders of record at the close of business on February 28 2022.
Now I would like to review our outlook, which reflects current trends, including the rapidly evolving COVID-19 environment.
Speaker 4: 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 fiscal 2022.
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 fiscal 2022, we are confirming our guidance for fiscal year 2022, which we first established.
Speaker 4: We are confirming our guidance for fiscal year 2022, which we first established in mid-November.
In mid November while the first quarter's performance exceeded our expectations. We feel it is appropriate to maintain our previously issued guidance at this time in light of the uncertainty around the COVID-19 environment and trends.
Speaker 4: While the first quarter's performance exceeded our expectations, we feel it is appropriate to maintain our previously issued guidance at this time in light of the uncertainty around the COVID-19 environment and trends.
Speaker 4: Our guidance includes the following. Open four to six new stores. Re-legate or remodel three to four stores.
Our guidance includes the following.
<unk> opened four to six new stores relocate or remodel three to four stores.
Speaker 4: Achieve daily average comparable store sales growth between 0% and 2%. Achieve the looted earnings per share between 75 cents to 87 cents. And direct 28 to 35 million dollars towards capital expenditures to support our growth initiative.
<unk> daily average comparable store sales growth between zero percent and 2% achieved diluted.
Diluted earnings per share between <unk> 75 to 87.
And direct 28% to $35 million towards capital expenditures to support our growth initiatives.
Speaker 4: In closing, we had a strong quarter that we attribute to our customers appreciation for our differentiated business model. We continue to be encouraged by our recent trends and we are confident in our ability to drive growth and enhance value for all stakeholders.
In closing, we had a strong quarter that we attribute to our customers' appreciation for our differentiated business model. We continue to be encouraged by our recent trends and we are confident in our ability to drive growth and enhance value for all stakeholders.
Speaker 4: With that, I would like to open the lines up for questions. Thank you.
With that I would like to open the lines up for questions. Thank you.
We will now begin the question and answer session.
Speaker 1: To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys.
To ask a question you May press Star then one telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
Speaker 1: To withdraw your question, please post start on 2. At this time, we will pause momentarily to assemble our bus.
To withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker 1: Our first question comes from Spencer Haines with Wolf Research. You may now go ahead.
Our first question comes from.
Spencer Hanus with Wolfe Research you May now go ahead.
Speaker 5: Good morning, good afternoon guys. Congrats on a great quarter. I guess the profitability really struck out to us this quarter. Maybe just talk a little bit about your confidence that you'll be able to maintain this level of profitability going forward, any one time things that we should keep in mind. And then I guess as it relates to the supplement business, and as you start to laugh tougher compare is there in the second half, how should we think about the performance there on the top fine perspective? very much anytime.
Good morning, Good afternoon, guys. Congrats on a great quarter, I guess, the profitability really stuck out to us this quarter, maybe just talk a little bit about your confidence that you'll be able to maintain this level of profitability going forward any one time things that we should keep in mind and then I guess as it relates.
The supplemental.
Business and as you start to lap tougher tougher compares there in the second half how should we think about the performance there from a topline perspective.
Well.
Going forward.
We expect.
First two months this quarter.
Sure.
Actually January pretty similar in February .
Speaker 5: February only has 28 cases. So the last quarter as far as the final month, if I'm going after that, it's very difficult for us to predict our ongoing ability to achieve the same.
Okay.
So.
With last quarter as far as the bottom line.
Going after that.
Okay.
Ongoing.
Ability.
Okay.
Sure Bob.
Yes.
Got it.
And then as far as supplement business.
There is a big tailwind.
Yes.
Covid.
Serge.
Paul.
Seem to carry it over first part of it.
Okay.
Probably going to be very difficult.
Fourth quarter of <unk>.
For fiscal year two.
Thank you.
The same.
Positive.
Growth.
Okay.
Okay.
Quarter.
Okay.
Speaker 5: Got it, that's helpful. And then when you think about comps quarter to date, are you expecting 2Q to look similar to what you guys saw in the first quarter, maybe on a two-year SAC basis? Are you expecting any moderation there? Maybe just walk us through what you're expecting from a top-line perspective, as much as you have visibility into it. It'll be, I mean, for January , I would expect to be similar to February and March.
Got it that's helpful and then.
When you think about comps sort of quarter to date are you expecting sort of <unk> to look similar to what you guys saw.
In the first quarter or maybe on a two year stack basis are you expecting any moderation there maybe just walk us through sort of what you're expecting from a topline perspective. It just as much as you have visibility.
Yes.
It will be.
For the first for January .
So.
February and March.
Yes.
March with flash.
On a two year stack basis.
We expect to have a positive comp.
Sue.
Speaker 5: compared to the last one.
Yes.
This compared to last month similar.
Similar to what we.
Yeah.
And then of course February okay.
Yes.
<unk> com.
Okay.
Speaker 4: Got it. And then in the script you mentioned that you were seeing out of stock worsen in January . Have you seen any impact on sales from that or promotional intensity or you expect any change there in the second quarter? And then how do you think your in-stock rates are comparing to other peers in the market?
Got it and then and then in the script you mentioned that Youre seeing out of stocks worst in January have you've seen any impact on sales from that our promotional intensity or you expect any change there in the second quarter.
And then how do you think your in stock rates are comparing.
Their peers in the market.
Speaker 5: The out of stocks in January definitely were a problem. They did expect still.
The out of stock in January .
We are a problem.
Bill.
Really good in January .
We are seeing trends.
Speaker 5: We are seeing trends with the supply chain warming up here in February .
Supply chain.
February .
Okay.
By the end of this month.
Alright.
Okay, and then you asked about promotions.
Speaker 5: I don't see that the promotions are planned way at a time and the orders.
I don't see that.
Promotions are planned way at a time.
Orders.
Yes.
Available.
Yes.
Speaker 6: Got it and staying on supply chain for a minute. When you think about new unit growth and and the ability to hit that four to six new stores this year, do you need to see any improvement in the supply chain to get to that target? Are you seeing any just how are you thinking about sort of new unit growth in the context of the tough sort of operating climate here?
Got it and staying on supply chain for a minute when you think about new unit growth and the ability to hit that four to six new stores. This year do you need to see any improvement in the supply chain to get to that target.
Are you seeing any how are you thinking about starting new unit growth in the context of the top sort of operating climate here.
Speaker 5: The only issue we've had as far as stocking new stores, we haven't really had an issue getting the product to two new stores where we've had issues with our equipment supply. We've kind of tackled that by extending out our build-out period. And then we're ordering further ahead on equipment.
The only issue we have as far as stock in new stores.
Haven't really.
Uni.
<unk>.
Where we've had issues with our equipment equipment supply.
We've kind of tackled that.
Extending out our build our build out period.
And then.
We're further ahead on it.
We've anticipated the items that are growing.
And so.
We're pretty confident in our quarters.
New stores.
The.
Rob.
Got it and then with inflation picking up in <unk>.
Speaker 5: Got it. And then in with inflation picking up in in the first quarter here to three to 4% range. Are you expecting that to be constant throughout the rest of this year? Or could there be any downtick or uptick sort of as we look into the back half from inflation standpoint? I definitely do not think it's going to be going down.
In the first quarter here I think 3% to 4% range are you expecting that to be constant throughout the rest of this year or could there be any downtick or uptick sort of as we look into the back half from an inflation standpoint.
I definitely do not think it's going to be going down.
Okay.
Okay.
Got it.
Bye bye.
Increase notices that we're doing here.
Yes.
I mean in the.
April .
Okay.
Speaker 6: got it and then one last one for me but maybe you could talk a little bit about the end power members that you recruited over the last couple of years and talk how they're spending habits.
Got it and then one last one for me, but maybe you could talk a little bit about the empower members that you recruited over the last couple of years.
How their spending habits.
Speaker 6: look the same in maybe different versus some of the previous cohorts that you attracted to natural grocers and how you expect that to trend over time.
Look the same and maybe different versus some other previous cohorts that you attracted to natural grocers and how you expect that to trend over time.
Speaker 3: The customers that shot on a monthly basis.
The customers that shop on a monthly basis.
Speaker 3: essentially are spending around $53 per person.
Essentially our spending around $53.
Perfect.
And the people that arent empower members.
Speaker 5: and the people that aren't in our members tend around $25 per foot.
On $25.
And it really hasnt fluctuated that much.
And so we're able to take these new members and convert them into really good growth.
Speaker 7: So we're able to take these new members and convert them into really good cuts.
Great well, that's really helpful data point.
I mean, the empower program that's been really helpful.
Being able to keep.
Our current customers engage and add new customers.
Speaker 3: meet our current customers engage in Adgrid & connotto customers.%%
The discounts are.
Reported.
It works really well.
And we're able to Matthew.
We message to those customers three times per week.
Our four times.
Yeah.
Speaker 6: Oh, great. Thank you so much for the color and I'll jump back in the queue. Thank you.
Oh, great. Thank you so much for the color and I'll jump back into queue.
Alright, thank you.
Okay.
If you ask a question.
Please press Star then one to join the queue.
Speaker 1: There are no further questions. This concludes our question and answer session. I'd like to turn the conference back over to Ken Poon for any closing remarks.
There are no further questions. This concludes our question and answer session.
I would like to turn the conference back over to Ken for any closing remarks.
Speaker 3: Thank you very much for joining us to discuss our first quarter results. We are proud of our performance in our history of providing the highest quality natural and organic product that always is affordable.
Thank you very much for joining us to discuss our first quarter results. We are proud of our performance in our history of providing the highest quality natural and organic products at always affordable prices.
Communities, we serve we look forward to speaking with you on our next call to review our second quarter 2020 results. Please stay healthy and safe and have a great day Goodbye.
Speaker 5: We look forward to speaking with you on our next call to review our second quarter 2022 results. Please stay healthy and safe and have a great day.
Goodbye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker 1: The conference is now concluded. Thank you for attending today's presentation. You may now best commence.