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Natural Grocers finishes strong in first half

Rewards program, private label help propel fiscal 2019 growth

Rising sales in the second quarter closed out a strong 2019 first half for natural/organic supermarket chain Natural Grocers by Vitamin Cottage.

For the quarter ended March 31, net sales climbed 6.7% to $230.4 million from $215.9 million a year earlier, Natural Grocers reported yesterday after the market close. The Lakewood, Colo.-based retailer said the gain stems mainly from increases of $6.2 million in same-store sales and $9.1 million in new-store sales.

Daily average comparable-store sales rose 2.9% year over year in the second quarter and reflect 3.5% growth in transaction size and a 0.6% dip in transaction count. Natural Grocers said inclement winter weather across several market areas negatively impacted the quarterly performance, namely transaction count. For mature stores (open during or before fiscal 2014), comp sales edged up 1.8%.

Second-quarter net earnings totaled $3.9 million, or 17 cents per diluted share, up from $3.4 million, or 15 cents per diluted share, in the 2018 quarter. Analysts’ average estimate was for EPS of 15 cents, according to Refinitiv/Thomson Reuters.

“We had a strong second quarter, with continued positive sales trends and a stable gross margin. The competitive environment continues to evolve as our competition endeavors to find their position in the grocery landscape. This evolution has created an opportunity for Natural Grocers, as we are focused on leveraging our values and differentiation,” Chairman and Co-President Kemper Isley told analysts in a conference call Thursday.

Isley noted that Natural Grocers’ {N}power rewards program has continued to be a catalyst as part of its broader marketing strategy.

“We are pleased with the results from our marketing efforts, including further growth of our {N}power loyalty program, which represents a growing percentage of our sales,” he said. “We remain focused on leveraging {N}power, building brand awareness and educating consumers on our differentiation through a range of advertising campaigns. In this regard, our out-of-home advertising, television and social digital initiatives are all performing well.”

Private label also remains a growth focus. The company launched the Natural Grocers store brand in September with 35 SKUs across 10 categories and, Isley said, has since expanded the line by another 75 items.

“Our target is to add 100 SKUs this year, so we'll more than double the number of SKUs that we added last year,” he told analysts. “And we'll probably roll out a similar amount next year and the year after that.”

Natural_Grocers_brand_lineup.pngNatural Grocers said it will double the number of store-brand items it introduced last year.

Natural Grocers has made online grocery delivery available to more customers but doesn’t see the service as part of its core strategy, according to Isley.

“We partnered with Instacart in regards to that, and they have rolled out delivery in most of our markets. It's still not a significant amount of our business. We believe that the business that we're doing with them is incremental,” he explained. “We're not planning on pushing it because, if it takes away from our in-store business, then it would not be incrementally profitable. It's expensive to do the delivery.”

For the first half of the year, Natural Grocers totaled sales of $452 million, up 8.0% versus the year-ago period. Daily average comp-store sales advanced 4.2%, with gains of 3.3% in transaction size and 0.8% in transaction count. Comp sales at mature stores rose 2.7%.

Net income for the six months came in at $6.1 million, or 27 cents per diluted share, compared with $8.6 million, or 38 cents diluted share, a year earlier. Natural Grocers said the reflects the impact of a $4.3 million noncash remeasurement of deferred income tax assets and liabilities in connection with federal tax reform. Excluding that impact, first-half net earnings were $4.3 million, or 19 cents per diluted share.

During the 2019 second quarter, Natural Grocers opened one new store and relocated one store, finishing the period with 152 locations in 19 states. Isley said in the call that the retailer plans to open seven or eight new stores during fiscal 2019 and relocate five units.

Natural Grocers added that it has relocated one store since April 1 and that it has signed leases for five new stores and acquired the land and building for one new store. Those locations are in Colorado, Louisiana, North Dakota and Oregon and are slated to open starting in fiscal 2019.

"As a result of our year-to-date performance, our outlook for fiscal 2019 daily average comparable-store sales growth remains in line with expectations, and we are raising our fiscal 2019 diluted earnings per share outlook,” Isley said in a statement Thursday.

For the full year, Natural Grocers projects same-store sales growth of 2% to 4% and diluted EPS of 35 cents to 41 cents. Analysts’ consensus forecast is for EPS of 40 cents, according to Refinitiv/Thomson Reuters.

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