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Natural Grocers plans to slow growth

Natural Grocers by Vitamin Cottage plans to refocus on operations as its path to improved profitability. Here's how it has been performing and why its leadership thinks it can profit from the Amazon-Whole Foods Market deal.

After experiencing a roller coaster year, Natural Grocers by Vitamin Cottage’s Co-president Kemper Isely reported that the health food store chain will slow its pace of growth and commit to operational efficiencies.

“Looking ahead, we have moderated new unit growth to reflect the challenging competitive environment and have no additional new store openings planned for the fourth quarter of fiscal 2017,” Isely said via press release. “With comparable stores sales trending in the right direction, including good momentum exiting the third quarter, we intend to refocus our efforts on controlling expenses and improving earnings performance."

This will continue into 2018, he told analysts during the third-quarter earnings call Aug. 3. Natural Grocers trades as NGVC on the New York Stock Exchange.

“Our goal right now is to stabilize our operations and make all of our stores more profitable,” he said. “We are still going to expand our store base but on a more strategic basis.’’

And while the company also is exploring alternative distribution options, Isely isn’t celebrating Instacart success nor envisioning a grocery future sans bricks and mortar. He pointed to Kroger’s 10-year delivery service in Denver that accounts for an estimated 2 percent of its business. Even Natural Grocers’ own experience shows the company is getting “very, very small revenue” from its Instacart service.

He told analysts that Amazon is “definitely a threat” but noted “unlike Amazon, we’re not rewarded for not making money.”

Isely sees the Amazon-Whole Foods Market deal as an opportunity.

“When they buy Whole Foods they will probably change the way they are operated and those changes could cause a lot of dissatisfaction with their loyal customers,” he said. “And if we market properly and position ourselves properly, we could pick up a lot customers because of that.”

Highlights for Natural Grocers by Vitamin Cottage’s third quarter and first nine months of fiscal 2017:

• Net sales increased 8.6 percent to $194.7 million in the third quarter and increased 8.8 percent to $570.5 million in the first nine months of fiscal 2017.
• Daily average comparable store sales increased 0.4 percent in the third quarter and decreased 0.7 percent in the first nine months of fiscal 2017.
• Net income was $600,000 with diluted earnings per share of 3 cents in the third quarter and was $5.7 million with diluted earnings per share of 25 cents in the first nine months of fiscal 2017.
• EBITDA was $9.2 million in the third quarter and was $33.3 million in the first nine months of fiscal 2017.
• Opened 14 new stores in the first nine months of fiscal 2017, compared to 15 in the first nine months of fiscal 2016, resulting in growth rates of 18.6 percent and 19.2 percent for the 12-month periods ended June 30, 2017, and 2016, respectively.

In addition to the quarterly report, Natural Grocers by Vitamin Cottage released revised fiscal year guidance. It last updated guidance during its second-quarter report.

Revisions compared with first nine-month actuals include:

• New stores, 14 with those already opening in fiscal ’17.
• Same-store sales of negative 1 percent to 0.5 percent compared with negative 0.7 percent actual in the first nine months.
• Net income as percentage of sales from 0.9 percent to 1 percent, with that number being 1 percent so far this fiscal year.
• Diluted earnings per share of 31-34 cents compared with 25 cents for the first nine months of fiscal 2017.
• EBITDA as a percentage of sales from 5.7 percent to 5.9 percent compared with 5.8 percent actual for nine months.

This piece originally appeared on New Hope Network, a Supermarket News sister website.

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