Price and promotional investments took a toll on margins even though they lifted comparable store sales and daily average transaction counts for Natural Grocers by Vitamin Cottage in its first fiscal quarter of 2018.
For the three months ended Dec. 31, 2017, Natural Grocers reported net sales of $202.5 million. That’s up $18.9 million, or 10.3 percent, from the first quarter of 2017, driven by $10.2 million from new store sales and a 1.6 percent jump in daily average mature store sales.
Daily average comparable store sales increased 4.7 percent—an improvement from a 0.6 percent decrease in the first quarter of fiscal 2017.
Co-president Kemper Isely explained Thursday on a call with investors that price and promotional investments during the quarter included direct mail promotions, continued leverage of {N}Power loyalty program promotions (and the addition of 75,000 new members), local store marketing and events.
Gross margin declined to 26.3 percent of sales, compared with 28.4 percent of sales for the first quarter of fiscal 2017. Lower profit margin because of those promotions was the main culprit there, CFO Todd Dissinger said, as well as a shift in sales mix to lower-margin products and higher occupancy costs as a percentage of sales.
But Isely said those price investments are critical.
"The reason that it's important to spend on price is to build customer counts at our stores so that we can remain vital and viable in the future," he commented. "Without price promotion, you can do all the marketing you want to do but it isn't going to drive customers into your store."
Now Natural Grocers must pull back on those price investments and hope to retain those customers.
“As we move forward, we have an opportunity to be more effective with our promotional offers,” Isely said. “We will look to further refine our promotional activity as the year progresses.”
The retailer benefited from a $4.3 million non-cash remeasurement of its deferred income tax assets and liabilities during the quarter, as a result of the recent federal tax reform legislation.
It opened two new stores and relocated another during the quarter.
When asked about changes in the competitive landscape, Isely noted that the opening of new competitor stores has slowed dramatically compared to 18 months ago.
"In regards to Whole Foods, as the quarter progressed, we saw the comps at our stores that are competing with Whole Foods improve more than our overall comps," he added. "It's possible that we are receiving some of the benefits of their inventory issues."
Isely noted that Natural Grocers has been working hard on refining its own inventory management and replenishment strategies.
Throughout fiscal year 2018, Natural Grocers plans to open eight to 10 new stores and achieve daily average comparable store sales growth of 1 percent to 3 percent.
This piece originally appeared on New Hope Network, a Supermarket News sister website.
