Q1 2025 Natural Grocers by Vitamin Cottage Inc Earnings Call
Good day, ladies and gentlemen, welcome to the natural grocers first quarter fiscal year 'twenty 25 earnings conference call. At this time all participants are in a listen 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 Teson, Vice President Treasurer for natural Grocers Ms. Chasen you may begin.
Good afternoon, and thank you for joining us for the natural grocers by vitamin Cottage first quarter fiscal year, 'twenty 25 earnings conference call.
Speaker Change: On the call with me today are Kemper Isley co President and Rich Hale Chief Financial Officer.
Speaker Change: As a reminder, certain information provided during this conference call contains 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 detour a variety of factors, including the risks and uncertainties detailed in the company's most recently.
Speaker Change: <unk> forms 10-Q, and 10-K the company undertakes no obligation to update forward looking statements. Our remarks today include references to adjusted EBITDA, which is a non-GAAP measure. Please see our earnings release for a reconciliation of adjusted EBITDA to net income today's earnings release is available on the company's website.
Speaker Change: And a recording of this call will be available on the website at investors Dot natural grocers Dot com.
Kemper Isley: Now I will turn the call over to Kemper.
Kemper Isley: Thank you Jessica and good afternoon, everyone.
Kemper Isley: Thank you for joining us for our first quarter call today, I will highlight our financial results, including key drivers of our performance.
Kemper Isley: Provide an update on our initiatives then rich will discuss the first quarter results in greater detail and review our updated fiscal year 2025 guidance, we were very pleased.
Kemper Isley: Pleased with the strong start to our fiscal year.
Kemper Isley: Our first quarter results saw accelerating growth and continuation of the positive trends, we experienced over the past two years, including broad based growth across product categories and geographic regions.
Kemper Isley: Moreover, comparable store sales growth has remained balanced between transaction counts transaction size in items per basket.
Kemper Isley: We believe that many of our performance metrics are among the highest in grocery retail.
Kemper Isley: Our daily average comparable store sales increase accelerated to eight 9% for the first quarter.
Kemper Isley: And was 15, 1% I'll, let two year basis.
Kemper Isley: Additionally, we have had eight consecutive quarters of positive transaction count comps and four consecutive quarters with both an increase in items per basket and modest inflation.
Kemper Isley: Our sales growth in recent years and expectation for continued sales growth are supported by our differentiated offering.
Kemper Isley: Consumers are increasingly high or timing products that support health and sustainability, creating tailwind for our business our offering of high quality products at always affordable prices creates a compelling value proposition that customers recognize its distinctive within the marketplace Road.
Kemper Isley: Bustan balanced sales growth combined with effective expense management drove significant operating leverage and generated a 26, 5% year over year increase in diluted earnings per share.
Kemper Isley: We believe our growth in fiscal 'twenty, and 'twenty, five and beyond will benefit from our close alignment with consumer trends.
Kemper Isley: <unk> customer engagement through our empower rewards program expansion of the natural grocers brand products, new store development and driving existing store productivity.
Kemper Isley: During the first quarter that sales penetration of our empower rewards program with 81% up from 78% a year ago.
Reflecting continued positive trends in customer loyalty and engagement.
Natural grocers brand products represent a premium quality at compelling prices in the first quarter, our branded products accounted for 8.9% of total sales.
Kemper Isley: Up from eight 5% a year ago helped in part by new products. During the quarter, We launched 23, new natural grocers brand items that all meet our high standards for nutritional health.
Kemper Isley: And sustainability, including organic variety of tomato sauce pasta and soup during the first quarter, we relocated two stores and closed two stores subsequent to the quarter, we opened a new store in Brownsville, Texas.
Kemper Isley: Store unit growth and development continues to be a priority for our company during fiscal 2025, we plan to open four to six new stores and relocate or remodel two to four stores.
Kemper Isley: Earlier this week, we released our fiscal year 'twenty 'twenty four sustainability report since my parents founded the company in 1955 natural grocers has prioritized offering quality products at affordable prices nutrition education, and caring for our crew and communities, we believe that grocery store.
Kemper Isley: Ours play a pivotal role in the food chain a system that is a central to health and wellbeing, we choose positively impact of ways that food in this nation has grown raised unsold we aim to offer nutritionally sound environmentally responsible products and prioritize vendors and farmers who are.
Kemper Isley: As passionate about human health animal welfare and the health of our planet as we are Furthermore, we believe that our company's ongoing financial success demonstrates that our business model dedicated to offering affordable high quality natural and organic products can help deliver positive <unk>.
Kemper Isley: Our metal and social impact, while creating value for all of our stakeholders.
Speaker Change: Closing I would like to thank our good for you crew for their commitment to operational execution and exceptional customer service. They have been essential to our sustained success with that I will turn our call over to rich to discuss our financial results and guidance.
Rich Hale: Thank you Kemper and good afternoon for.
Rich Hale: For the first quarter net sales increased nine 4% from the prior year period to $332 million.
Rich Hale: Daily average comparable store sales increased eight 9% and increased 15, 1% on a two year basis.
Rich Hale: Our daily average comparable transaction count increased five 3%.
Rich Hale: This marks our eighth consecutive quarter with positive customer traffic comps.
Rich Hale: Our daily average comparable transaction size increased three 4%.
Rich Hale: The transaction five comp included an increase in items per basket of approximately two percentage points.
Rich Hale: We estimate that the transaction size comp also included modest product cost inflation of approximately one to two percentage points on an annualized basis.
Rich Hale: Importantly, this was the fourth consecutive quarter with both an increase in items per basket and modest inflation.
Rich Hale: Sales growth continued to be broad based across product categories.
Rich Hale: Our strongest performing departments were dairy meat and produce.
Rich Hale: The dietary supplement sales comp was also positive.
Rich Hale: For the first quarter gross margin increased 50 basis points to 29, 9% driven by store occupancy cost leverage and higher product margin.
Rich Hale: Store expenses increased 8.1% in the first quarter, primarily driven by higher compensation expenses.
Rich Hale: Store expenses as a percentage of net sales decreased 20 basis points, reflecting expense leverage.
Rich Hale: Administrative expenses as a percentage of net sales increased 40 basis points, driven by higher compensation and technology expenses.
Rich Hale: Compensation expenses included costs related to our Chief financial Officer transition.
Rich Hale: Operating income increased 23, 6%.
Rich Hale: The $13 $3 million.
Rich Hale: Net income increased 28, 1% to $9 9 million and diluted earnings per share increased 26, 5%.
Rich Hale: 43 cents in the first quarter.
Rich Hale: Adjusted EBITDA increased 21, 7% to $22 $8 million.
Rich Hale: Turning to the balance sheet and cash flow.
Rich Hale: We ended the first quarter in a strong liquidity position, including $6 $3 million of cash and cash equivalents.
Rich Hale: And $61 $4 million available to borrow on our $72 $5 million revolving credit facility.
Rich Hale: We had $8 $9 million in outstanding borrowings on our credit facility.
Rich Hale: During the first quarter, we invested $9 $4 million and net capital expenditures, primarily for new and relocated stores.
Rich Hale: Based on the strong start to our fiscal year, coupled with confidence in our business trends and execution.
We are increasing our fiscal 2025 outlook for daily average comparable store sales growth.
Rich Hale: And diluted earnings per share.
Rich Hale: Our revised outlook includes the following.
Rich Hale: Four to six new store openings.
Rich Hale: Two to four store relocations or Remodels.
Rich Hale: Daily average comparable store sales growth between five and 7%.
Rich Hale: An increase compared to our prior outlook of between four and 6%.
Rich Hale: Diluted earnings per share between $1 57, and $1 65, an increase compared to our prior outlook of $1 52 to $1 60.
Rich Hale: And capital expenditures of $36 million to $44 million to support our growth initiatives.
Rich Hale: Our outlook reflects the first quarter results and considers both the current operating momentum we are experiencing and consumer trends.
Rich Hale: Our outlook includes the benefits of our new store growth.
Rich Hale: Targeted marketing focused on our value proposition differentiation and customer engagement.
And operating initiatives focused on driving higher productivity in our stores.
Rich Hale: Our current expectation is that sales comps will be at the high end of our outlook range in the second quarter.
Rich Hale: While moderating somewhat in the second half of the year as we continue to cycle relatively strong comps in the prior year.
Rich Hale: We expect modest inflation throughout the year in line with current trends.
Rich Hale: Although we acknowledge the uncertainty of the impact of possible tariffs.
Rich Hale: Our outlook anticipates that year over year gross margin will be relatively flat.
Rich Hale: Lastly, we expect that year over year store expenses as a percentage of sales will be relatively flat to slightly lower.
Rich Hale: In closing we are pleased with the strong start to the fiscal year.
Rich Hale: We attribute our strong performance to the relevance of our differentiated business model, including the value proposition of high quality products at always affordable prices.
Rich Hale: Now we'd like to open the line for questions.
Rich Hale: Thank you.
Rich Hale: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star and then two.
Scott Moskin: Our first question comes from Scott Moskin with Arc five capital. Please go ahead.
Speaker Change: Scott Your line may be muted.
Scott Moskin: Yeah.
Scott Moskin: Hey, guys, sorry about that it was no problem.
Speaker Change: So my first question is kind of how we love you guys left off your prepared remarks, you obviously had a good amount of leverage on.
Rental gross margin.
Speaker Change: With the comps being so strong what are the offsets as the year goes on that you would think gross margins it kind of be relatively flat.
Speaker Change: Okay.
Speaker Change:
Speaker Change: Oh, you mean.
Speaker Change: Thank you.
Speaker Change: It wouldn't improve in other words, the gross margin rate wouldn't move higher as you leverage the rent, but I think runs through it.
Rich Hale: Hey, Scott this is rich.
Scott Moskin: Yeah, we did see an improvement of 60 basis points in the margin.
Scott Moskin: A significant percentage of that was related to store occupancy cost leverage.
Scott Moskin: And some of that.
Scott Moskin: For product margin improvement.
Scott Moskin: Yes, we can go forward you know as we've talked in our outlook, we expect that.
Scott Moskin: Comps in the second half will start to.
Scott Moskin: Lower.
Scott Moskin: We will be a lower end of our range as we start to cycle.
Scott Moskin: Pretty strong comps from the prior year, so you'll see less benefit from store occupancy leverage.
Scott Moskin: And I think you know, obviously, a little bit uncertain as to the tariff environment.
Scott Moskin: Went back on product cost and so we don't we're worried a little bit of a wait and see situation.
Scott Moskin: Got it.
Appropriately Conservative I guess is how I would kind of think of how you guys are thinking about it is that makes sense.
Scott Moskin: Yeah, I think that's a fair statement.
Scott Moskin: Yeah.
Scott Moskin: I mean I think the next question my other questions are more longer term well actually before I get to that I actually did have a one.
Scott Moskin: It kind of a shorter term question on free cash flow.
Scott Moskin: You know there was some working capital movements there.
Scott Moskin: Between the years and I was wondering.
Scott Moskin: Yes.
Scott Moskin: Some timing things going on when we think about free cash flow for the quarter.
Scott Moskin: Yes, it's all timing driven.
Scott Moskin: Predominantly the accounts payable and the timing of payments for goods and services.
Scott Moskin: Okay.
Scott Moskin: That's my last shorter term, one so kind of on a longer term basis, if we step back and look at the business.
Speaker Change: I think you guys are at 4% operating margin in the quarter, obviously your nearest competitor.
Speaker Change: Sprouts has a much higher margin than you guys.
Speaker Change: What why can't it continue to climb as you.
Speaker Change: Assuming they always say assuming that a good idea to thinking it's probably a better word that comps remained strong maybe not as strong as they've been you continue to increase the penetration of owned brands.
Speaker Change: Your branded product.
Speaker Change: As you continue to reap the benefits of empower like.
Speaker Change: Why shouldn't that.
Speaker Change: Again thinking comps can stay above the three.
Speaker Change: 3% to 4% range.
Speaker Change: Should that continue to rise and it is there in your minds.
Speaker Change: A limit to where it will go.
Speaker Change: Sure.
Speaker Change: We continue to see sales leverage.
Speaker Change: Sales expansion as we move forward, we should continue to see some expansion in our margins.
Speaker Change: That's to be expected, obviously, depending on unit growth for stores that also will have some impact in dampening down some of that expansion.
Speaker Change: But I think it's a reasonable assumption.
Speaker Change: In terms of comparing it to.
Speaker Change: You know, that's a little bit of a different store.
Speaker Change: As you know we're very.
Speaker Change: <unk> focused on.
Speaker Change: Our product quality and affordable pricing.
And affordable pricing.
Speaker Change: Is it competitive.
Point for the company.
Speaker Change: The strength and and we know that we are priced lower than our competition and so that that will continue to as you know as we stay true to.
Speaker Change: Our values that will have some impact.
Speaker Change: Yeah.
Speaker Change: I loved that by the way, it's such a great answer.
Scott Moskin: So then the final thing Kemper I think we've talked about this before like.
Scott Moskin: The last piece is like you know.
Scott Moskin: It's just going to be repetitive, but he had 46 stores.
Scott Moskin: Could you do seven to nine you know is that possible or U S.
Scott Moskin: Thing that you've thought about a little bit more.
Scott Moskin: And I'm trying to get right.
Scott Moskin: I think as we've said in our guidance.
Scott Moskin: This year, we're focused on four to six and then next year, we're hopeful that we'll be able to that the pipeline will open up a little bit more and we'll be able to do six to eight stores.
Scott Moskin: Yeah.
Scott Moskin: And then going forward that would be kind of the plan to do six to eight stores.
Scott Moskin: Alright, guys. That's actually I don't think there's anyone on the line. It's usually just me. So I you know I really appreciate it and I'm just going to say it one more time I know youre not interested but we'd love to have a store in Florida.
Scott Moskin: Okay.
Speaker Change: [laughter], Florida is a little bit off of our path.
Speaker Change: I just loved the stores so much I, just such a unique offering I love. The fact, the way you price.
Speaker Change: If you were to consulting client of ours I would say you're doing you know when youre doing most things right and Ah I think its great and obviously the trend is your friend right now and hopefully.
Speaker Change: I shouldn't say that on a conference call. So I wont say that but I could say something political a little bit, but I won't do that.
Speaker Change:
Speaker Change: But it looks like there's going to be an increased focus on healthy eating how about if I just say that.
Speaker Change: I think there will be I agree with you.
Speaker Change: And it will be to the benefit of this industry for sure.
Speaker Change: Absolutely absolutely okay.
Speaker Change: Thanks, so much.
Alright, Thanks, you open up and have a nice afternoon, Yeah, you too bye bye.
Speaker Change: Yeah.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Kemper is Lee for any closing remarks.
Kemper Isley: Thank you for joining us we believe that natural grocers continues to be well aligned with consumer category tailwind.
Kemper Isley: Helping to fuel our momentum and putting us in a strong position for the remainder of the fiscal year. Thank you and have a great day.
Kemper Isley: Yeah.
Kemper Isley: The conference is now concluded. Thank you for attempting the natural grocers first quarter fiscal year 2025 earnings Conference call you may now disconnect.