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Natural Grocers by Vitamin Cottage Announces Third Quarter and Year to Date Fiscal 2016 Results

LAKEWOOD, Colo., July 28, 2016 /PRNewswire/ -- Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC) today announced results for its third quarter and year to date fiscal 2016 periods ended June 30, 2016, reaffirmed its outlook for fiscal 2016 and provided its initial unit growth outlook range for fiscal 2017.

Natural Grocers by Vitamin Cottage

Highlights for Third Quarter and Year to Date Fiscal 2016 Compared to Third Quarter and Year to Date Fiscal 2015

  • Net sales increased 13.0% to $179.3 million in the third quarter and increased 13.4% to $524.5 million year to date.
  • Comparable store sales increased 1.8% in the quarter and 2.1% year to date. Daily average comparable store sales increased 0.7% in the third quarter and increased 1.8% year to date.
  • Net income was $2.7 million with diluted earnings per share of $0.12 in the third quarter and was $10.0 million with diluted earnings per share of $0.44 year to date.
  • EBITDA was $10.4 million in the third quarter and was $35.8 million year to date.
  • Opened 15 new stores year to date in fiscal 2016, compared to 12 new stores year to date in fiscal 2015, resulting in growth rates of 19.2% and 17.9% for the twelve month periods ended June 30, 2016 and 2015, respectively.

"We began to see some stabilization in our sales trends during the third quarter, which, combined with prudent cost measures, allowed us to deliver results consistent with our guidance," said Kemper Isely, Co-President. "We are confident that the sales initiatives we are implementing, along with new store performance that is in line with expectations, will support our growth objectives."

In addition to presenting the financial results of Natural Grocers by Vitamin Cottage, Inc. and its subsidiaries (collectively, the Company) for the third quarter and year to date fiscal 2016 and 2015 in conformity with U.S. generally accepted accounting principles (GAAP), the Company is presenting EBITDA, which is a non-GAAP financial measure.  The reconciliation from GAAP to this non-GAAP financial measure is provided at the end of this earnings release. 

Operating Results — Third Quarter Fiscal 2016 Compared to Third Quarter Fiscal 2015

During the third quarter of fiscal 2016, net sales increased $20.6 million, or 13.0%, to $179.3 million compared to the same period in fiscal 2015, primarily due to a $17.7 million increase in new store revenue and a $2.9 million, or 1.8%, increase in comparable store sales.  Daily average comparable store sales increased 0.7% in the third quarter of fiscal 2016, which followed a 5.8% increase in the third quarter of fiscal 2015 and was driven by a 0.7% increase in average transaction size period over period. Daily average mature store sales decreased 1.3% in the third quarter of fiscal 2016. For fiscal 2016, mature stores include all stores open during or before fiscal 2011.

Gross profit during the third quarter of fiscal 2016 increased 10.4% over the same period in fiscal 2015 to $50.9 million, primarily driven by an increase in the comparable store base, comparable store sales growth and one additional selling day compared to the same period in fiscal 2015. Gross profit reflects earnings after both product and occupancy costs. Gross margin was 28.4% for the third quarter of fiscal 2016 compared to 29.1% for the third quarter of fiscal 2015. Gross margin was negatively impacted by an increase in occupancy costs as a percentage of sales and shrink expense, partially offset by product margin improvements across most categories.

Store expenses during the third quarter of fiscal 2016 increased $6.6 million, or 19.7%, to $40.1 million. Store expenses as a percentage of sales increased approximately 125 basis points to 22.4% during the third quarter of fiscal 2016 compared to 21.1% in the third quarter fiscal 2015. This increase was primarily due to increases in salary-related expenses, depreciation and other store expenses.

Administrative expenses increased $0.5 million, or 11.4%, to $4.8 million for the three months ended June 30, 2016 compared to $4.3 million for the three months ended June 30, 2015.  The increase in administrative expenses was primarily due to the addition of senior management positions to support the Company's growth, together with legal and public company costs.  Administrative expenses as a percentage of sales was 2.7% for each of the three months ended June 30, 2016 and 2015.

Pre-opening and relocation expenses increased $0.9 million during the third quarter of fiscal 2016 compared to the comparable period in fiscal 2015, due to the number and timing of new store openings and relocations. During the third quarter of fiscal 2016, the Company opened six new stores, relocated one store and remodeled one store compared to opening four new stores during the third quarter of fiscal 2015. Additionally, the Company incurred heightened pre-opening expenses as it prepared to open eight new stores during the fourth quarter of fiscal 2016.

Interest expense during the third quarter of fiscal 2016 remained relatively flat when compared to the comparable period in fiscal 2015.

The Company's effective income tax rate for the three months ended June 30, 2016 and 2015 was 17.5% and 32.8%, respectively.  The decrease in the effective income tax rate was driven by a revision in the Company's estimated annual federal tax rate from 35% to 34% and federal and state tax credits in our fiscal 2015 tax return that were higher than previously estimated in the provision for the three months ended June 30, 2016.

Net income in the third quarter of fiscal 2016 was $2.7 million, with diluted earnings per share of $0.12. EBITDA in the third quarter of fiscal 2016 was $10.4 million.

Operating Results — Year to Date Fiscal 2016 Compared to Year to Date Fiscal 2015

During the nine months ended June 30, 2016, net sales increased $62.2 million, or 13.4%, over the same period in fiscal 2015 to $524.5 million due to a $52.4 million increase in sales from new stores and a $9.8 million, or 2.1%, increase in comparable store sales. Daily average comparable store sales increased 1.8% during the first nine months of fiscal 2016, which followed a 5.8% increase year to date in fiscal 2015. The 1.8% increase year to date in fiscal 2016 was driven by a 1.1% increase in average transaction size and a 0.7% increase in daily average transaction count. Daily average mature store sales decreased 0.8% year to date in fiscal 2016.

Gross profit year to date in fiscal 2016 increased 11.5% over the same period in fiscal 2015 to $150.8 million, primarily driven by an increase in the number of comparable stores, comparable store sales growth and one additional selling day compared to the same period in fiscal 2015. Gross profit reflects earnings after both product and occupancy costs. Gross margin was 28.8% year to date in fiscal 2016, compared to 29.3% year to date in fiscal 2015. Gross margin was negatively impacted by an increase in occupancy costs as a percentage of sales.  Product margin improvements across most categories were offset by increased shrink expense, all as a percentage of sales.

Store expenses as a percentage of sales increased 90 basis points year to date in fiscal 2016 compared to the comparable period in fiscal 2015, due primarily to increases in salary-related expenses, depreciation and other store expenses.

Administrative expenses increased $1.8 million, or 14.2%, to $14.5 million for the nine months ended June 30, 2016 compared to $12.7 million for the nine months ended June 30, 2015. The increase in administrative expenses was primarily due to the addition of senior management positions to support our growth, together with legal and public company costs.  Administrative expenses as a percentage of sales were 2.8% and 2.7% for each of the nine months ended June 30, 2016 and 2015, respectively.

Pre-opening and relocation expenses increased $1.9 million year to date in fiscal 2016 compared to the comparable period in fiscal 2015, primarily due to the number and timing of new store openings and relocations. During the first nine months of fiscal 2016, the Company opened 15 new stores, relocated three stores and remodeled one store compared to opening 12 new stores during the first nine months of fiscal 2015. Additionally, the Company incurred heightened pre-opening expenses as it prepared to open eight new stores during the fourth quarter of fiscal 2016.

Interest expense decreased less than $0.1 million, or 2.9%, in the nine months ended June 30, 2016 compared to the comparable period in fiscal 2015, primarily due to an increase in capitalized interest, partially offset by an increase in interest expense associated with the Company's credit facility due to higher average borrowings during the nine months ended June 30, 2016.

The Company's effective income tax rate for the nine months ended June 30, 2016 and 2015 was 33.3% and 36.1%, respectively.  The decrease in the effective income tax rate was driven by a revision in the Company's estimated annual federal tax rate from 35% to 34% and federal and state tax credits in our fiscal 2015 tax return that were higher than previously estimated in the provision for the nine months ended June 30, 2016.

Net income for the nine months ended June 30, 2016 was $10.0 million, with diluted earnings per share of $0.44. EBITDA for the nine months ended June 30, 2016 was $35.8 million.

Balance Sheet and Cash Flow

As of June 30, 2016, the Company had $2.7 million in cash and cash equivalents, and $25.2 million available under its credit facility.  On May 10, 2016, the Company's credit facility was amended to increase the amount available for borrowing thereunder to $45.0 million. Credit facility usage was comprised of $18.8 million of direct borrowings and $1.0 million of letters of credit.

Year to date in fiscal 2016, the Company generated $20.7 million in cash from operations and invested $39.3 million in capital expenditures, primarily for new stores.

Growth and Development

During the third quarter of fiscal 2016, the Company opened six new stores, bringing the total store count as of June 30, 2016 to 118 stores located in 19 states. The Company opened 15 new stores year to date in fiscal 2016 compared to 12 new stores year to date in fiscal 2015, resulting in 19.2% and 17.9% unit growth rate for the twelve month periods ended June 30, 2016 and 2015, respectively. Additionally, the Company relocated one store and completed the remodel of another store during the third quarter of fiscal 2016. The Company plans to open a total of 23 new stores in fiscal 2016, which would result in an annual unit growth rate of 22.3%.

As of the date of this release, the Company has opened two additional stores in Arizona, relocated a store in Colorado and has 19 signed leases for stores planned to open in fiscal 2016 and 2017 in Arizona, Colorado, Idaho, Iowa, Missouri, Nevada, North Dakota, Oregon, Texas, Utah and Washington.

Fiscal 2016 Outlook

The Company is reiterating its outlook for fiscal 2016, which was updated when the Company reported preliminary second quarter results on April 20, 2016:



Current Fiscal
2016 Outlook



Nine Months
Ended June 30,
2016 Actual

Number of new stores


23



15

Number of relocations


4



3

Number of remodels


1



1

Daily average comparable store sales growth


0% to 1.5%  



1.8%

Net income as a percent of sales


       1.6% to 1.8%  



1.9%

Diluted earnings per share


  $0.50 to $0.56  



$0.44

EBITDA as a percentage of sales


6.7% to 7.0%  



6.8%

Capital expenditures (in millions)


     $52 to $54  



$39








 

Initial Fiscal 2017 Unit Growth Outlook

The Company is providing its initial 2017 unit growth outlook. The company anticipates opening 19 to 23 new stores, representing 15% to 18% unit growth over the expected fiscal 2016 year-end store count.

Earnings Conference Call

The Company will host a conference call today at 2:30 p.m. Mountain Time (4:30 p.m. Eastern Time) to discuss this earnings release. The dial-in number is 1-888-347-6606 (US); 1-855-669-9657 (Canada); or 1-412-902-4289 (International). The conference ID is "Natural Grocers by Vitamin Cottage." A simultaneous audio webcast will be available at http://Investors.NaturalGrocers.com and archived for a minimum of 30 days.

About Natural Grocers by Vitamin Cottage

Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC) is a rapidly expanding specialty retailer of natural and organic groceries and dietary supplements whose products must meet strict quality guidelines. The grocery products sold by Natural Grocers may not contain artificial colors, flavors, preservatives or sweeteners, or partially hydrogenated or hydrogenated oils. The Company sells only USDA certified organic produce and exclusively pasture-raised, non-confinement dairy products. Natural Grocers' flexible smaller-store format allows it to offer affordable prices in a shopper-friendly retail environment. The Company also provides extensive free science-based nutrition education programs to help customers make informed health and nutrition choices. The Company, founded in 1955, has 120 stores in 19 states.

Visit www.NaturalGrocers.com for more information and store locations.

Forward-Looking Statements

The following constitutes a "safe harbor" statement under the Private Securities Litigation Reform Act of 1995. Except for the historical information contained herein, statements in this release are "forward-looking statements" and are based on current expectations and assumptions that are subject to risks and uncertainties. All statements that are not statements of historical fact are forward-looking statements. Actual results could differ materially from those described in the forward-looking statements because of factors such as changes in the Company's industry, business strategy, goals and expectations concerning the Company's market position, the economy, future operations, margins, profitability, capital expenditures, liquidity and capital resources, other financial and operating information and other risks detailed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2015 (Form 10-K) and the Company's subsequent quarterly reports on Form 10-Q. The information contained herein speaks only as of the date of this release and the Company undertakes no obligation to update forward-looking statements.

For further information regarding risks and uncertainties associated with the Company's business, please refer to the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections of the Company's filings with the Securities and Exchange Commission, including, but not limited to, the Form 10-K and the Company's subsequent quarterly reports on Form 10-Q, copies of which may be obtained by contacting Investor Relations at 303-986-4600 or by visiting the Company's website at http://Investors.NaturalGrocers.com.

 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.


Consolidated Statements of Income

(Unaudited)

(Dollars in thousands, except per share data)




Three months ended
June 30,


Nine months ended
June 30,




2016


2015


2016


2015


Net sales


$

179,274


158,650


524,455


462,281


Cost of goods sold and occupancy costs


128,344


112,508


373,627


326,975


Gross profit


50,930


46,142


150,828


135,306


Store expenses


40,095


33,508


114,768


97,018


Administrative expenses


4,813


4,322


14,503


12,705


Pre-opening and relocation expenses


2,007


1,078


4,399


2,525


Operating income


4,015


7,234


17,158


23,058


Interest expense


(768)


(768)


(2,154)


(2,217)


Income before income taxes


3,247


6,466


15,004


20,841


Provision for income taxes


(567)


(2,121)


(4,999)


(7,529)


Net income


$

2,680


4,345


10,005


13,312












Net income per common share:










Basic


$

0.12


0.19


0.44


0.59


Diluted


$

0.12


0.19


0.44


0.59


Weighted average number of shares of common stock outstanding:










Basic


22,501,044


22,491,158


22,499,229


22,488,975


Diluted


22,506,098


22,500,454


22,505,220


22,499,732


 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.



Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands, except per share data)









June 30,

2016


September 30, 2015


Assets






Current assets:






Cash and cash equivalents


$

2,703


2,915


Accounts receivable, net


2,593


2,576


Merchandise inventory


86,368


74,818


Prepaid expenses and other current assets


3,347


1,108


Deferred income tax assets



866


Total current assets


95,011


82,283


Property and equipment, net


172,003


145,219


Other assets:






Deposits and other assets


947


778


Goodwill and other intangible assets, net of accumulated amortization of $372 and $683, respectively


5,599


5,623


Deferred financing costs, net


53


21


Total other assets


6,599


6,422


Total assets


$

273,613


233,924








Liabilities and Stockholders' Equity






Current liabilities:






Accounts payable


$

56,050


49,896


Accrued expenses


13,293


19,649


Capital and financing lease obligations, current portion


435


333


Total current liabilities


69,778


69,878


Long-term liabilities:






Capital and financing lease obligations, net of current portion


30,509


27,274


Deferred income tax liabilities


10,961


6,073


Revolving credit facility


18,827



Deferred compensation


644


314


Deferred rent


8,360


6,922


Leasehold incentives


8,557


7,975


Total long-term liabilities


77,858


48,558


Total liabilities


147,636


118,436


Stockholders' equity:






Common stock, $0.001 par value, 50,000,000 shares authorized, 22,503,644 and 22,496,628 shares issued and outstanding, respectively


23


22


Additional paid-in capital


55,604


54,982


Retained earnings


70,489


60,484


Common stock in treasury, at cost, 10,300 and no shares, respectively


(139)



Total stockholders' equity


125,977


115,488


Total liabilities and stockholders' equity


$

273,613


233,924


 

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)







Nine months ended

June 30,




2016


2015


Operating activities:






Net income


$

10,005


13,312


Adjustments to reconcile net income to net cash provided by operating activities:






Depreciation and amortization


18,617


15,532


Loss on disposal of property and equipment


4


53


Share-based compensation


662


398


Deferred income tax expense


5,754


958


Non-cash interest expense


10


12


Changes in operating assets and liabilities






Increase in:






Accounts receivable, net


(17)


(525)


Merchandise inventory


(11,550)


(10,656)


Prepaid expenses and other assets


(2,409)


(613)


Increase (decrease) in:






Accounts payable


3,409


8,028


Accrued expenses


(6,363)


910


Deferred compensation


330


207


Deferred rent and leasehold incentives


2,280


1,605


Net cash provided by operating activities


20,732


29,221


Investing activities:






Acquisition of property and equipment


(39,302)


(24,806)


Proceeds from sale of property and equipment


12


12


Payment for acquisition



(5,601)


Net cash used in investing activities


(39,290)


(30,395)


Financing activities:






Borrowings under credit facility


175,062


115,423


Repayments under credit facility


(156,235)


(115,423)


Capital and financing lease obligations payments


(290)


(169)


Contingent consideration payments for acquisition



(514)


Loan fees paid


(42)



Repurchases of common stock


(139)



Payments on withholding tax for restricted stock unit vesting


(10)


(22)


Net cash provided by (used in) financing activities


18,346


(705)


Net decrease in cash and cash equivalents


(212)


(1,879)


Cash and cash equivalents, beginning of period


2,915


5,113


Cash and cash equivalents, end of period


$

2,703


3,234


Supplemental disclosures of cash flow information:






Cash paid for interest


$

161


35


Cash paid for interest on capital and financing lease obligations, net of capitalized interest of $469 and $207, respectively


1,897


2,109


Income taxes paid


6,362


6,254


Supplemental disclosures of non-cash investing and financing activities:






Acquisition of property and equipment not yet paid


$

9,177


6,367


Property acquired through capital and financing lease obligations


3,343


5,827


 

NATURAL GROCERS BY VITAMIN COTTAGE, INC.

Non-GAAP Financial Measure
(Unaudited)

EBITDA is not a measure of financial performance under GAAP. We define EBITDA as net income before interest expense, provision for income taxes and depreciation and amortization.

EBITDA decreased 17.7% to $10.4 million in the three months ended June 30, 2016 compared to $12.6 million for the three months ended June 30, 2015.  EBITDA decreased 7.3% to $35.8 million in the nine months ended June 30, 2016 compared to $38.6 million for the nine months ended June 30, 2015.  EBITDA as a percent of sales was 5.8% and 8.0% in the three months ended June 30, 2016 and 2015, respectively.  EBITDA as a percent of sales was 6.8% and 8.3% in the nine months ended June 30, 2016 and 2015, respectively. Stores with leases that are classified as capital and financing lease obligations, rather than being reflected as operating leases, increased EBITDA as a percentage of sales by approximately 55 basis points in each of the three months ended June 30, 2016 and 2015, respectively, and by approximately 55 basis points in each of the nine months ended June 30, 2016 and 2015, respectively, due to the impact on cost of goods sold and occupancy costs as discussed above, as well as occupancy costs that would have been included in pre-opening expenses prior to the stores' opening dates if these leases had been accounted for as operating leases. 

We believe EBITDA provides additional information about: (i) our operating performance, because it assists us in comparing the operating performance of our stores on a consistent basis, as it removes the impact of non-cash depreciation and amortization expense as well as items not directly resulting from our core operations such as interest expense and income taxes and (ii) our performance and the effectiveness of our operational strategies.  Additionally, EBITDA is a component of a measure in our financial covenants under the Credit Facility. Further, our incentive compensation plans base incentive compensation payments on EBITDA.

Furthermore, management believes some investors use EBITDA as a supplemental measure to evaluate the overall operating performance of companies in our industry. Management believes that some investors' understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing results of operations. By providing this non-GAAP financial measure, together with a reconciliation from net income, we believe we are enhancing analysts' and investors' understanding of our business and our results of operations, as well as assisting analysts and investors in evaluating how well we are executing our strategic initiatives. Our competitors may define EBITDA differently, and as a result, our measure of EBITDA may not be directly comparable to EBITDA of other companies. Items excluded from EBITDA are significant components in understanding and assessing financial performance. EBITDA is a supplemental measure of operating performance that does not represent, and should not be considered as an alternative to, or substitute for, net income or other financial statement data presented in our consolidated financial statements as indicators of our financial performance. EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of the limitations are:

  • EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
  • EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
  • EBITDA does not reflect any impact for straight-line rent expense for leases classified as capital and financing lease obligations; 
  • EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on our debt;
  • EBITDA does not reflect our tax expense or the cash requirements to pay our taxes; and
  • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and EBITDA does not reflect any cash requirements for such replacements.

Due to these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA as supplemental information.

The following table reconciles net income to EBITDA for the periods presented, dollars in thousands:



Three months ended
June 30,


Nine months ended
June 30,




2016


2015


2016


2015


Net income


$

2,680


4,345


10,005


13,312


Interest expense


768


768


2,154


2,217


Provision for income taxes


567


2,121


4,999


7,529


Depreciation and amortization


6,380


5,402


18,617


15,532


EBITDA


$

10,395


12,636


35,775


38,590


 

The Company does not provide financial guidance for forecasted net income, and, therefore, is unable to provide a reconciliation of its EBITDA guidance to net income, the most comparable financial measure calculated in accordance with GAAP.

Logo - http://photos.prnewswire.com/prnh/20141209/163083LOGO

 

SOURCE Vitamin Cottage Natural Food Markets, Inc.

For further information: Investor Contacts: Scott Van Winkle, ICR, Managing Director, 617-956-6736, scott.vanwinkle@icrinc.com

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