Natural Grocers by Vitamin Cottage Inc

Previous wording

We operate natural and organic grocery and dietary supplement stores that are focused on providing high-quality products at affordable prices, exceptional customer service, nutrition education and community outreach. We offer a variety of natural and organic groceries, dietary supplements and body care products that meet our strict quality standards. We believe we have been at the forefront of the natural and organic foods movement since our founding. We are headquartered in Lakewood, Colorado. As of December 31, 2023, we operated 167 stores in 21 states, including Colorado, Arizona, Arkansas, Idaho, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington and Wyoming. We also operate a bulk food repackaging facility and distribution center in Golden, Colorado.

Current wording

We operate natural and organic grocery and dietary supplement stores that are focused on providing high-quality products at affordable prices, exceptional customer service, nutrition education and community outreach. We offer a variety of natural and organic groceries, dietary supplements and body care products that meet our strict quality standards. We believe we have been at the forefront of the natural and organic foods movement since our founding. We are headquartered in Lakewood, Colorado. As of March 31, 2024, we operated 168 stores in 21 states, including Colorado, Arizona, Arkansas, Idaho, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington and Wyoming. We also operate a bulk food repackaging facility and distribution center in Golden, Colorado.

Previous wording

We offer a variety of natural and organic groceries and dietary supplements that meet our strict quality guidelines. The sizes of our stores range from approximately 7,000 to 16,000 selling square feet. For the quarter ended December 31, 2023, our new stores averaged approximately 10,000 selling square feet.

Current wording

We offer a variety of natural and organic groceries and dietary supplements that meet our strict quality guidelines. The sizes of our stores range from approximately 7,000 to 16,000 selling square feet.

Previous wording

The growth in the organic and natural foods industry and growing consumer interest in health and nutrition have enabled us to continue to open new stores and enter new markets. During the five fiscal years ended September 30, 2023, we increased our store count at a compound annual growth rate of 2.2%. In fiscal year 2023, we opened three new stores, relocated/remodeled three existing stores and closed two stores. We plan to open four to six new stores and relocate/remodel four to six stores in fiscal year 2024. As of the date of this report, we have signed leases or acquired property for an additional one new store and five relocations/remodels that we plan to open in fiscal years 2024 and beyond. During the three months ended December 31, 2023, we opened two new stores and relocated/remodeled one store. Between January 1, 2024 and the date of this Form 10-Q, we opened one new store and did not relocate/remodel any stores.

Current wording

The growth in the organic and natural foods industry and growing consumer interest in health and nutrition have enabled us to continue to open new stores and enter new markets. During the five fiscal years ended September 30, 2023, we increased our store count at a compound annual growth rate of 2.2%. In fiscal year 2023, we opened three new stores, relocated/remodeled three existing stores and closed two stores. We plan to open four to six new stores and relocate/remodel four to six existing stores in fiscal year 2024. During the six months ended March 31, 2024, we opened three new stores and relocated/remodeled one existing store. Between April 1, 2024 and the date of this Form 10-Q, we did not open any new stores and relocated/remodeled one existing store.

Previous wording

Key highlights of our performance for the three months ended December 31, 2023 are discussed briefly below and in further detail throughout this MD&A. Key financial metrics including, but not limited to, daily average comparable store sales, are defined in the section “Key Financial Metrics in Our Business,” presented later in this MD&A.

Current wording

Key highlights of our performance for the three and six months ended March 31, 2024 are discussed briefly below and in further detail throughout this MD&A. Key financial metrics, including, but not limited to, daily average comparable store sales, are defined in the section “Key Financial Metrics in Our Business,” presented later in this MD&A.

Previous wording

During fiscal year 2023 and the first quarter of fiscal year 2024, the costs of certain goods we sell were impacted by levels of inflation higher than we have experienced in recent years, resulting in part from supply disruptions, ongoing global conflicts, increased shipping and transportation costs, increased commodity costs, increased labor costs in the supply chain, monetary policy actions, other disruptions and the uncertain economic environment. In the aggregate, management estimates that the Company experienced annualized cost inflation of approximately 3% in the first quarter of fiscal year 2024. Cost inflation estimates are based on individual like items sold during the periods being compared. The impact of inflation on our sales and profitability is influenced in part by our ability to adjust our retail prices accordingly. While we have been able to mitigate this impact to date through our pricing strategies, we are unable to predict how long the current inflationary environment will continue or the impact of inflationary trends on consumer behavior and our sales and profitability in the future.

Current wording

During fiscal year 2023 and the first half of fiscal year 2024, the costs of certain goods we sell were impacted by levels of inflation higher than we have experienced in recent years, resulting in part from supply disruptions, ongoing global conflicts, increased shipping and transportation costs, increased commodity costs, increased labor costs in the supply chain, monetary policy actions, other disruptions and the uncertain economic environment. In the aggregate, management estimates that the Company experienced annualized cost inflation of approximately 2% in the second quarter of fiscal year 2024. Cost inflation estimates are based on individual like items sold during the periods being compared. The impact of inflation on our sales and profitability is influenced in part by our ability to adjust our retail prices accordingly. While we have been able to mitigate this impact to date through our pricing strategies, we are unable to predict how long the current inflationary environment will continue or the impact of inflationary trends on consumer behavior and our sales and profitability in the future.

Previous wording

We expect the rate of new store unit growth in the foreseeable future to be dependent upon economic and business conditions and other factors, including construction permitting and the availability of construction materials and equipment. We believe there are opportunities for us to continue to expand our store base, expand profitability and increase comparable store sales. However, future sales growth, including comparable store sales, and our profitability could vary due to increasing competitive conditions in the natural and organic grocery and dietary supplement industries and regional and general economic conditions, including inflationary or recessionary trends. We believe there are opportunities for increased leverage of costs and increased economies of scale in sourcing products. However, due to the fixed nature of certain of our costs (in particular, our rent obligations and related occupancy costs), our ability to leverage costs may be limited.

Current wording

We expect the rate of new store unit growth in the foreseeable future to be dependent upon economic and business conditions and other factors, including construction permitting and the availability of construction materials, equipment and labor. We believe there are opportunities for us to continue to expand our store base, expand profitability and increase comparable store sales. However, future sales growth, including comparable store sales, and our profitability could vary due to increasing competitive conditions in the natural and organic grocery and dietary supplement industries and regional and general economic conditions, including inflationary or recessionary trends. We believe there are opportunities for increased leverage of costs and increased economies of scale in sourcing products. However, due to the fixed nature of certain of our costs (in particular, our rent obligations and related occupancy costs), our ability to leverage costs may be limited.

Previous wording

Net sales increased $21.3 million, or 7.6%, to $301.8 million for the three months ended December 31, 2023 compared to $280.5 million for the three months ended December 31, 2022, due to a $17.3 million increase in comparable store sales and a $5.5 million increase in new store sales, partially offset by a $1.5 million decrease in net sales related to closed stores. Daily average comparable store sales increased 6.2% for the three months ended December 31, 2023 compared to the three months ended December 31, 2022. The daily average comparable store sales increase in the first quarter of fiscal year 2024 resulted from a 3.4% increase in daily average transaction count and a 2.7% increase in daily average transaction size. Comparable store average transaction size was $47.31 for the three months ended December 31, 2023. The increase in net sales during the three months ended December 31, 2023 was driven by transaction count, retail price increases, new store sales, and marketing initiatives, including market-specific campaigns and {N}power® rewards program offers that drove customer engagement.

Current wording

Net sales increased $24.8 million, or 8.8%, to $308.1 million for the three months ended March 31, 2024 compared to $283.2 million for the three months ended March 31, 2023, due to a $21.1 million increase in comparable store sales and a $5.2 million increase in new store sales, partially offset by a $1.5 million decrease in net sales related to closed stores. Daily average comparable store sales increased 7.5% for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The daily average comparable store sales increase resulted from a 3.9% increase in daily average transaction size and a 3.5% increase in daily average transaction count. Comparable store average transaction size was $47.54 for the three months ended March 31, 2024. The increase in net sales during the three months ended March 31, 2024 was driven by increases in transaction counts, items per transaction, retail prices, and new store sales. Marketing initiatives, including {N}power® rewards program offers and market-specific campaigns, enhanced customer engagement, which contributed to sales growth.

Previous wording

Store expenses increased $4.4 million, or 6.9%, to $68.0 million for the three months ended December 31, 2023 compared to $63.6 million for the three months ended December 31, 2022. The increase in store expenses was primarily driven by higher compensation expense. Store expenses as a percentage of net sales were 22.5% and 22.7% for the three months ended December 31, 2023 and 2022, respectively. The decrease in store expenses as a percentage of net sales reflects expense leverage.

Current wording

Store expenses increased $4.0 million, or 6.2%, to $69.2 million for the three months ended March 31, 2024 compared to $65.2 million for the three months ended March 31, 2023. The increase in store expenses was primarily driven by higher compensation expenses. Store expenses as a percentage of net sales were 22.5% and 23.0% for the three months ended March 31, 2024 and 2023, respectively. The decrease in store expenses as a percentage of net sales reflects expense leverage.

Previous wording

Administrative expenses increased $1.2 million, or 14.0%, to $9.4 million for the three months ended December 31, 2023 compared to $8.3 million for the three months ended December 31, 2022. The increase in administrative expenses was primarily driven by higher compensation expense. Administrative expenses as a percentage of net sales were 3.1% and 2.9% for the three months ended December 31, 2023 and 2022, respectively.

Current wording

Administrative expenses increased $0.9 million, or 10.7%, to $9.5 million for the three months ended March 31, 2024 compared to $8.6 million for the three months ended March 31, 2023. The increase in administrative expenses was driven by higher compensation expenses. Administrative expenses as a percentage of net sales were 3.1% and 3.0% for the three months ended March 31, 2024 and 2023, respectively.

Previous wording

Interest expense, net of capitalized interest, was $0.9 million for the three months ended December 31, 2023 compared to $0.8 million for the three months ended December 31, 2022.

Current wording

Interest expense, net of capitalized interest, was $1.2 million for the three months ended March 31, 2024 compared to $0.8 million for the three months ended March 31, 2023.

Previous wording

Income tax expense increased $0.9 million for the three months ended December 31, 2023 to $2.2 million compared to $1.2 million for the three months ended December 31, 2022. The Company’s effective income tax rate was approximately 21.7% and 21.6% for the three months ended December 31, 2023 and 2022, respectively.

Current wording

Income tax expense increased $0.4 million for the three months ended March 31, 2024 to $2.1 million compared to $1.7 million for the three months ended March 31, 2023. The Company’s effective income tax rate was 21.1% and 22.5% for the three months ended March 31, 2024 and 2023, respectively.

Previous wording

Net income was $7.8 million, or $0.34 diluted earnings per share, for the three months ended December 31, 2023 compared to $4.4 million, or $0.19 diluted earnings per share, for the three months ended December 31, 2022.

Current wording

Net income was $8.0 million, or $0.35 diluted earnings per share, for the three months ended March 31, 2024 compared to $5.9 million, or $0.26 diluted earnings per share, for the three months ended March 31, 2023.

Previous wording

Gross profit increased $10.0 million, or 12.8%, to $88.8 million for the three months ended December 31, 2023 compared to $78.7 million for the three months ended December 31, 2022. Gross profit reflects earnings after product and store occupancy costs. Gross margin increased to 29.4% for the three months ended December 31, 2023 compared to 28.1% for the three months ended December 31, 2022. The increase in gross margin during the three months ended December 31, 2023 was driven by higher product margin attributed to effective pricing and promotions, and store occupancy cost leverage.

Current wording

Gross profit increased $17.9 million, or 11.1%, to $179.1 million for the six months ended March 31, 2024 compared to $161.2 million for the six months ended March 31, 2023. Gross profit reflects earnings after product and store occupancy costs. Gross margin increased to 29.4% for the six months ended March 31, 2024 compared to 28.6% for the six months ended March 31, 2023. The increase in gross margin during the six months ended March 31, 2024 was driven by higher product margin attributed to effective pricing and promotions, and store occupancy cost leverage.

Previous wording

Our ongoing primary sources of liquidity are cash generated from operations, current balances of cash and cash equivalents and borrowings under our Revolving Facility. Our Credit Facility consists of the $75.0 million Revolving Facility and the fully drawn $35.0 million Term Loan Facility. Our primary uses of cash are for purchases of inventory, operating expenses, capital expenditures predominantly in connection with opening, relocating and remodeling stores, debt service, cash dividends, share repurchases and corporate taxes. As of December 31, 2023, we had $13.6 million in cash and cash equivalents and $55.1 million available for borrowing under our Revolving Facility.

Current wording

Our ongoing primary sources of liquidity are cash generated from operations, current balances of cash and cash equivalents and borrowings under our Revolving Facility. Our Credit Facility consists of the $75.0 million Revolving Facility and the fully drawn $35.0 million Term Loan Facility. Our primary uses of cash are for purchases of inventory, operating expenses, capital expenditures predominantly in connection with opening, relocating and remodeling stores, debt service, cash dividends, share repurchases and corporate taxes. As of March 31, 2024, we had $11.0 million in cash and cash equivalents and $62.1 million available for borrowing under our Revolving Facility.

Previous wording

We paid a quarterly cash dividend of $0.10 per share of common stock and a special cash dividend of $1.00 per share of common stock in the three months ended December 31, 2023. The special cash dividend was funded through available cash and borrowings under our Revolving Facility. On February 7, 2024, our Board approved the payment of a quarterly cash dividend of $0.10 per share of common stock to be paid on March 20, 2024 to stockholders of record as of the close of business on March 4, 2024.

Current wording

We paid a quarterly cash dividend of $0.10 per share of common stock in each of the first two quarters of fiscal year 2024 and a special cash dividend of $1.00 per share of common stock in the first quarter of fiscal year 2024. The special cash dividend was funded through available cash and borrowings under our Revolving Facility. On May 8, 2024, our Board approved the payment of a quarterly cash dividend of $0.10 per share of common stock to be paid on June 19, 2024 to stockholders of record as of the close of business on June 3, 2024.

Previous wording

Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, impairment of long-lived assets and store closing costs, share-based compensation, and changes in deferred taxes, and the effect of working capital changes. Cash provided by operating activities decreased $4.6 million, or 21.6%, to $16.6 million for the three months ended December 31, 2023 compared to $21.2 million for the three months ended December 31, 2022. The decrease in cash provided by operating activities was primarily due to a decrease in cash provided by working capital, partially offset by an increase in cash provided by net income as adjusted for non-cash items.

Current wording

Net cash provided by operating activities consists primarily of net income adjusted for non-cash items, including depreciation and amortization, impairment of long-lived assets and store closures, share-based compensation, and changes in deferred taxes, and the effect of working capital changes. Cash provided by operating activities increased $2.0 million, or 5.7%, to $36.8 million for the six months ended March 31, 2024 compared to $34.9 million for the six months ended March 31, 2023. The increase in cash provided by operating activities was primarily due to an increase in cash provided by net income as adjusted for non-cash items, partially offset by a decrease in cash provided by working capital.

Previous wording

Net cash used in investing activities increased $0.5 million, or 4.7%, to $11.8 million for the three months ended December 31, 2023 compared to $11.3 million for the three months ended December 31, 2022. This increase was primarily the result of an increase in property and equipment of $1.3 million, partially offset by a decrease in other intangibles of $0.8 million during the three months ended December 31, 2023 compared to the three months ended December 31, 2022, attributed to the timing of new store openings, relocations/remodels, and software projects under development.

Current wording

Net cash used in investing activities increased $4.7 million, or 26.7%, to $22.5 million for the six months ended March 31, 2024 compared to $17.8 million for the six months ended March 31, 2023. This increase was primarily the result of an increase in property and equipment of $5.2 million, partially offset by a decrease in other intangibles of $0.5 million during the six months ended March 31, 2024 compared to the six months ended March 31, 2023, and was attributed to the timing of new store openings, relocations/remodels, and software projects under development.

Previous wording

We plan to spend approximately $18.2 million to $27.2 million on capital expenditures during the remainder of fiscal year 2024 in connection with expected new store openings and store relocations/remodels.

Current wording

We plan to spend approximately $7.5 million to $16.5 million on capital expenditures during the remainder of fiscal year 2024 in connection with expected new store openings and store relocations/remodels.

Previous wording

Acquisition of property and equipment not yet paid increased $4.2 million to $8.5 million for the three months ended December 31, 2023 compared to $4.3 million for the three months ended December 31, 2022 due to the timing of payments related to new store openings and relocations/remodels.

Current wording

Acquisition of property and equipment not yet paid increased $3.3 million to $5.4 million for the six months ended March 31, 2024 compared to $2.0 million for the six months ended March 31, 2023 primarily due to the timing of payments related to new store openings and relocations/remodels.

Previous wording

Net cash used in financing activities consists primarily of borrowings and repayments under our Credit Facility and dividends paid to stockholders. Net cash used in financing activities was $9.5 million for the three months ended December 31, 2023 compared to $5.0 million for the three months ended December 31, 2022. During the three months ended December 31, 2023, we paid a special cash dividend to stockholders of $22.7 million.

Current wording

Net cash used in financing activities consists primarily of borrowings and repayments under our Credit Facility and dividends paid to stockholders. Net cash used in financing activities was $21.7 million for the six months ended March 31, 2024 compared to $10.2 million for the six months ended March 31, 2023. During the six months ended March 31, 2024, we paid cash dividends of $27.3 million, including a special cash dividend to stockholders of $22.7 million.

Previous wording

We had $18.4 million and no amounts outstanding under the Revolving Facility as of December 31, 2023 and September 30, 2023, respectively. As of December 31, 2023 and September 30, 2023, we had undrawn, issued and outstanding letters of credit of $1.5 million, which were reserved against the amount available for borrowing under the Revolving Facility. We had $55.1 million and $48.5 million available for borrowing under the Revolving Facility as of December 31, 2023 and September 30, 2023, respectively. We had $5.7 million of outstanding borrowings under the fully drawn Term Loan Facility as of December 31, 2023.

Current wording

We had $11.4 million and no amounts outstanding under the Revolving Facility as of March 31, 2024 and September 30, 2023, respectively. As of March 31, 2024 and September 30, 2023, we had undrawn, issued and outstanding letters of credit of $1.5 million, which were reserved against the amount available for borrowing under the Revolving Facility. We had $62.1 million and $48.5 million available for borrowing under the Revolving Facility as of March 31, 2024 and September 30, 2023, respectively. We had $3.7 million of outstanding borrowings under the fully drawn Term Loan Facility as of March 31, 2024.