Q3 2022 Natural Grocers By Vitamin Cottage Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Natural Grocers 3rd Quarter fiscal year 2022 earnings conference call. At this time, all participants are in loosen-only mode.
Later we will conduct the question and answer session and instructions will be given at that time. As a reminder, today's call is being recorded. I'd now like to turn the conference over to Ms. Jessica Teecin, Vice President and Treasurer for Natural Grunsters. Ms. Teecin, you may begin.
Afternoon and thank you for joining us for the natural curfews by Vitamin Cottage, 3rd quarter fiscal year, 2022, earning for conference call. On the call with me today, our camper Isley, co-president, and Todd Dishinger, Chief Financial Officer. And Todd Dishinger, 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 10Q and 10K. The company undertakes no obligation to update forward-looking statements.
and diluted earnings per share of 17 cents.
Since the third quarter of fiscal 2019 or pre-pandemic levels, our daily average comparable stores sales have increased 14.1 percent and diluted earnings per share have grown 88.9 percent, demonstrating then during strength of our business model. Key to our success in differentiation is our steadfast commitment to our founding principles, including offering the highest quality natural and organic products at always affordable prices.
and free science-based nutrition education.
I would like to highlight a few key sales metrics from the quarter.
The third quarter comp sales of 2.5% was positively impacted by retail price inflation of about 6%. Historically, our specialized supply chain has yielded more stable inflation rates than conventional grocery.
We continue to pass along the cost inflation impact via pricing on the majority of products.
The average transaction size increased 2.7% and remained in the mid $40 range, which is up more than 20% from pre-pandemic levels.
The transaction count comp was relatively flat at negative 0.2%, which we believe was driven by a shift in consumer trends toward food away from home, in particular consumers traveling more frequently than a year ago.
The third quarter, item count per basket remained relatively stable, down a fraction of an item compared to the previous four quarters. Our item count per basket increased by 12% compared to pre-pandemic levels.
Through the third quarter, we did not observe customer trade down in response to inflationary trends. Our ag offering is a good indicator of shifts in consumer behavior, because there are three distinct categories offered at different price points.
free range organic and pasture raised.
Our analysis of the third quarter indicated that we did not experience trade down in this vertical and quantities remained relatively consistent across each category.
Our NPower loyalty program remains an important tool for optimizing promotional activity and driving customer engagement. We ended the quarter with more than 1.7 million loyalty members, a year-over-year increase of 19%.
The third quarter net sales penetration for ANPOWER was 75% up from 71% a year ago.
Evidenceing our customers awareness of the value provided by this program.
The average end power basket size is approximately 50 percent higher than a non-end power basket.
Our natural grocer's brand products are premium quality products at affordable prices, creating a key point of differentiation, the drives loyalty and sales growth. Our natural grocer's brand products accounted for 7.7% of net sales in the third quarter.
up from 7.1% in the third quarter of last year.
During the quarter, we launched eight new branded products across body care, bulk, and supplements.
During the quarter we were excited to open a new store in Canyon City, Colorado and subsequent to the quarter we opened our first South Dakota store in Sioux Falls.
We are pleased with both communities' responses to these new store openings.
We are on track to open a total of three to four new locations and relocate two stores in fiscal year 2022. Over the next several years we expect to return to opening between six and eight new stores per year.
subject to improving construction and supply chain conditions.
Carrying for our crew is one of the company's five founding principles. We offer competitive pay unique benefits and career growth opportunities that attract, engage, develop and retain our workforce. It is part of our commitment to our crew. During the fiscal year we have invested more than 14 million in incremental wage increases on an annualized basis.
In closing, I want to thank every member of our good for you crew for their strong execution of our operating strategies, including a commitment to exceptional customer service, which has been instrumental in driving our results. With that, let me turn the call over to Todd to discuss our financial results and guidance. With that, let me turn the call over to Todd to discuss our financial results and guidance.
Thank you, Kemper, and good afternoon. The third quarter results were in line with our expectations.
Our third quarter net sales increased 3% on a year over year basis to $266.3 million.
Daily average comparable store sales were up 2.5%. The average transaction size increased 2.7%.
and average transaction count decreased 0.2%.
The categories with the strongest comparable sales were meat, grocery, and dairy, supplements comped similar to the company total.
How do stocks continue to improve through the quarter and we're at the lowest level since the pandemic began?
Gross margin of 27.6%.
was 10 basis points lower than the prior year, driven by lower product margin, attributed to higher freight, distribution, and shrink expanses, partially offset by store occupancy leverage.
The increase in the shrink rate included cycling the benefit of an insurance claim recovery in the third quarter of last year associated with product losses from the February 2021 severe weather in our south central and Pacific Northwest markets.
Excluding this one-time item, Grossmargin would have been flat year over year.
Store expenses as a percentage of net sales was 22.6% up from 22.1% in the third quarter of fiscal 2021.
The increase was primarily driven by higher labor expense as a result of increased wage rates.
Operating income was $5.7 million, and operating margin was 2.1%.
Net income was $3.9 million with diluted earnings per share of 17 cents.
and adjusted EBITDA was $13 million.
Our financial position remains strong at the end of the third quarter with $19.9 million of cash and cash equivalents. We had no outstanding borrowings under our $50 million revolving credit facility.
and a $17.7 million balance on our term loan.
During the first nine months of fiscal 2022, we generated cash from operations of $29.5 million and invested $18 million in net capital expenditures, resulting in free cash flow of $11.5 million.
Today we announce that our Board of Directors has declared a quarterly cash dividend of 10 cents per share of common stock. The dividend will be paid on September 14th, 2022 to all stockholders of record at the close of business on August 29th, 2022.
Now turning to our outlook for fiscal year 2022.
We are refining our new store openings, comparable store sales, and earnings outlook previously updated on May 5, 2022.
Our Outlook considers year-to-day performance in current trends. Additionally, it considers that we are cycling strong sales in margin performance in the fourth quarter of last year. U.S Derischer judge Chris in the fourth quarter of last year.
and we are currently operating with higher store wage rates.
Finally, the outlook considers the uncertainty of the pandemic and economic and inflationary factors.
Our full year guidance includes the following. We have opened 3-4 new stores.
Relocate or remodel two stores. Achieve daily average comparable store sales growth between 2% and 3%.
Achieve diluted earnings per share between 87 cents and 96 cents and direct $28 to $35 dollars towards capital expenditures to support our growth initiatives.
In closing, we are pleased with our results for the third quarter.
The performance was in line with our expectations and positioned us to meet our fiscal 2022 sales and earnings outlook. The performance was in line with our fiscal 2022 sales and placed us to meet our fiscal 2022 sales outlook. The performance was in line with our fiscal 2022 sales outlook. The performance was in line with our fiscal 2022 sales
Our unwavering commitment to our founding principles, our consistency, and the dedication of our good for you crew differentiates us from the competition. Our extraordinary contribution received the recognition factor has recruited neo-WKner number one gotten reminded of from our Curiositygun???Hytech roamed T Escaps Roamed Li H R R R R R R R R R R R R R R R R R R R R R R R R R R R R R Y R R R R R R R R R R R R R R R R R R R R R R R R R Thank you.
As we close the year, we continue to strive to be the grosser of choice for the highest quality natural and organic products at always affordable prices.
Now, I would like to open up the lines for questions. Thank you.
You all begin the question and answer session. To ask the question, you may press $1 on your telephone keypad.
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At this time, we will pause momentarily to assemble our roster.
Our first question comes from Spencer Hannes with Wolf Research. Please go ahead.
Great, thanks for the question. Can you just talk a little bit about what you're seeing in quarter to date because the guidance does imply that comps will decelerate in 4Q, and then any update on what your outlook is for inflation for the full year. Thank you for the question.
Well, we're expecting
For this quarter, we're in line with where we expected to be. And we're seeing...
Normalized.
vacation trends of our customers. So, it's slightly slower than last quarter.
And as far as inflation, we do not see a moderation in inflation for the rest of the year. So we're expecting somewhere in the 6 to 7% range for the rest of the year on inflation. the rest of the year on it.
Okay, got it. That's helpful. And then you mentioned that inflation was tracking up 6% in the quarter, but you aren't seeing any signs of trade down. Has that been surprising? And as you think about planning the business for the second half of this year, are you expecting to see more trade down or any impact on units in the second half here?
No, I don't believe there should be a significant amount of trade down for our customers. I mean, our customers are pretty...
Poiled and are
Okay, and we always have always our you know, our prices are always affordable
that really helps with keeping the customer.
from trading down.
Got it, got it. And then taking a step back and thinking about the industry and where we are from a unit standpoint, I think a lot of grocers are reporting to clients and units. Do you think that there's going to be an acceleration in promotions once the supply chain starts to normalize and a lot of these operators prioritize unit growth going forward?
No, I really don't see that there can be a lot of phone calls.
more promotional activity in the industry, the wage pressure, etc. It just makes it really hard for people to cut their margins right at the moment.
And then secondly, I really don't see that we're going to have much... I mean our slight decrease in number of items in a basket, we attribute almost entirely to a more normalized summer vacation pattern rather than anything else.
And we figure that in the fall, as the children go back to school, and people come off of vacation, that our baskets will stabilize and become more similar to what it was last year. And we are going to be able to make a better future. And we are going to be able to make a better future.
Okay, and then just in terms of the unicrow and getting back to that six to eight store is a year, do you think you'll be able to do that next year given the supply chain constraints that are out there for building new stores and any additional color you can provide on that front.
I think we've gotten, we've learned.
to be very proactive on our acquisition of equipment and construction materials. So once we get a store into the... you will be entreg to achievement plan.
Go Faze, we are being proactive in ordering.
the equipment and our items that have had.
Long lead times ahead of time so that we can get them, have them on time for the stores to get open. And then secondly we've learned that...
We need to arm us.
Get our plans into the city's quicker so that we don't have delays in permits. I mean, the delays in permits from cities has been somewhat problematic lately too, but we seem to, we've learned from this year that we need to accelerate the plans and planning into the city. And as far as us getting to the, we definitely think we'll get to the six stores that we're planning on opening next year and then probably.
the relocation of two to three stores next year.
Right now we have four stores that are on the, that we are, we have three stores with signed leases for next year and then one store that's almost with the signed lease should have it signed next week and all of those should open within the first.
So I guess it depends on how you look at that year, but anyway by the third quarter of next year.
Yeah.
Thank you for the color.
Thank you for the color.
Again, if you have a question, please press dollar and one.
At this time, there are no further questions. This concludes our question and answer session. I would like to turn the conference back over at Kemper Island for any closing remarks.
Thank you very much for joining us to discuss our third quarter results. This month marks our 67th year serving our community. I encourage you to visit one of our locations between August 13th, 18th, and 20th to help us celebrate our anniversary. We look forward to updating you on our next call regarding the fourth quarter and full fiscal year 2022 results. Thank you. Thank you very much.
This concludes the conference. Thank you for attending today's presentation. You may now disconnect.
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